The world of digital lending is moving at a very fast pace. Crypto Lending is refreshingly new and comfortingly familiar, it is the best thing since the inception of blockchain technology-depending on your outlook and where your assets are presently stored.
Blockchain technology empowers cryptocurrencies. Though still evolving, it is changing banks and other financial institutions in the way they carry out their lending and borrowing process through the use of Decentralized Finance (DeFi), which is one of the major use cases of blockchain technology.
Traditional financial institutions are slowly making their way into the crypto space as the appeal of this new technology is gradually becoming more apparent.
Crypto lending is one of the rising trends in the crypto space and has massed a lot of attention as an alternative for investors to increase their asset productivity. Meaning investors now have more options and ways to earn interest on their assets. Now, let’s dive in and understand the crypto lending ecosystem.
What Is Crypto Lending?
Crypto lending is a form of Decentralized Finance (DeFi). As the name implies, it is the act of lending cryptocurrencies or fiat currencies to borrowers in exchange for interest payments through crypto exchanges or various lending platforms. As an emerging trend in finance and blockchain, for lending to happen an interest will be incurred at an agreed rate.
Crypto lending works best for investors who have crypto assets and are not using them any time soon. It helps investors to earn extra cryptos just by lending them. Just lend your crypto, agree to the smart contract and earn an interest rate for a given period.
How Crypto Lending Works
Although crypto lending is slightly different from platform to platform, depending on the platform you are using-the general concept is still the same. Here an investor makes his or her crypto assets available to loan on a lending platform, at a set rate.
A borrower will request to borrow or lend some of the lender’s assets from the exchange, by providing collateral that will be escrowed on the lending platform. Some days later, the borrower will pay back the borrowed assets with the interest rate.
The whole process of cryptocurrency lending and borrowing is trustful because crypto lending also makes use of smart contracts and the contract implements the terms. For crypto lending to happen, it needs the following three agents;
A Crypto Lending Platform
This platform takes care of the lending and borrowing transactions. When it comes to these platforms, there are divided into two types. We have decentralized and centralized platforms.
- The Borrower
This could be individuals looking to obtain funds, usually using crypto assets or fiat currencies as collateral in order to get funding for whatever purposes.
- The Lender
This is the individual investor who provides or offers to lend his her assets, could be an investor holding crypto assets waiting for the price or value to soar.
What Are The Best Crypto Lending Platforms?
Well, are you thinking of trying out this type of lending? Although these platforms are different in their mode of operations, here are some of the best platforms you should consider if you are interested in crypto lending. For more information you can Compare the best crypto lending platforms.
Nexo is a blockchain company that allows crypto owners to use their assets as collateral, then withdraw cash in over 40 local currencies. Nexo is powered by Credissimo and gives crypto-asset holders access to cash while retaining the ownership of their assets.
Founded in 2017, BlockFi’s aim is to enable holders of cryptocurrency to do more with their crypto assets. The company is based in New York.
Unlike other crypto lending platforms, BlockFi offers an interest account where you lend your crypto to earn compound interest and crypto loans where you can raise funds using your cryptocurrency as collateral.
Lending cryptocurrency can be an easy way of earning passive income, the technology behind crypto lending is nascent and evolving rapidly. As more platforms contribute to the ecosystem, crypto lending will become more mature.