DeutschFor many crypto investors, simply storing digital currencies in their own crypto wallet and promptly taking profits is still the method of choice. However, direct investment is by no means the only option. So-called “hodling” is also enjoying increasing popularity. The third option in the group: lending cryptocurrencies. All three approaches have their justification, and many users deliberately rely on a combination to realize the highest possible returns with Bitcoin and Altcoins, both actively and passively. As expected, crypto loans are also not without risk. However, passive income of this kind proves to be advantageous and requires little effort if the lending takes place via reputable and secure decentralized platforms. Due to the risks, the decision to grant a loan undoubtedly requires careful consideration. The good news: Good service providers in the industry rely on fixed interest rates and guarantee lenders planning security.
An important advantage is that coins and tokens on platforms remain under the control of the owners. Even owners of stablecoins such as Tether (USDT) can now “take” interest income by lending on portals such as Coinloan. More and more owners of digital currencies are asking themselves whether hodling or lending cryptos is the better approach.
Hodlers Discover Crypto Lending as a Promising Addition
Hodlers are those crypto owners who hold their acquired digital currencies in their crypto wallet for the long term after purchase. This can be quite effective in times of rising prices. However, the value of the portfolio only actually increases here if the prices of the currencies in question show a plus. The strategy follows the saying “Buy and Hold” commonly used on the stock market. However, these profits are by no means guaranteed due to the high volatility (range of fluctuation) of the crypto market. Many analysts still recommend this approach to beginners. Also because the wallet concepts of crypto portals and exchanges are becoming increasingly secure and compensation institutions are increasingly being created to protect customers against typical dangers such as hacker attacks. Holding part of your crypto assets in wallets makes perfect sense. However, many hodlers are moving towards lending portfolios at least partially via (de-)centralized platforms and thus opening up additional sources of income.
The portals are advantageous in two ways: Lenders enjoy substantial interest rates. At the same time, crypto fans can also borrow capital for their own investments on the market against interest payments, even without larger assets.
Provide Crypto Holdings to Others and Collect Interest Rewards
Lending, i.e. lending your own coins, is also rewarded with the payment of interest by the corresponding portals. Anyone who borrows crypto money pays interest in return in addition to the successive or complete repayment on a fixed date. A distinction is made between fixed, pre-defined and variable interest rates. The latter are regularly redefined. Payments are often made in the lent cryptocurrency. Payments in other cryptos or fiat money are also possible. In addition to institutional lending providers, there are DeFi services that in turn provide for automated processing based on so-called smart contracts. These portals often work on the Ethereum blockchain. Loan pools or crypto savings accounts are usually used for settlements.
These Centralized Crypto Platforms are Suitable for Lending
The selection of platforms is constantly growing. The well-known exchange Binance, but also providers such as BlockFI, Celsius and CoinLoan are enjoying lively approval thanks to high interest rate promises. The service is often similar to that of classic banks. Coins are deposited into an account, and balances are subsequently subject to interest at regular intervals. Mostly in the same currency that was used for the loan. In the interests of diversification, interest payments in digital currencies not previously deposited in the account can prove useful. The promise of fixed interest rates is preferred by many lenders – precisely because of the planning security mentioned. Large representatives of the industry allow the lending of a whole range of “large” cryptocurrencies beyond the leading crypto currencies such as BTC or ETH. Variable interest rates have so far been more of an exception.
| Our tip:
It is advisable to pay attention to offers that allow early withdrawals of lent coins. Portals that work with pool solutions usually only allow the removal of unused holdings. Here, your own cryptocurrencies can only be accessed when “borrowers” have serviced their loans. |
The concept of “Decentralized Finance” is used by DeFi lending services. The basic idea is extended to the crypto credit sector. Well-known operators are providers such as dYdX, Compound or MakerDAO. Important: Users always retain control over crypto assets and manage them themselves. This is achieved, for example, through the use of browser-based and system-compatible wallets (e.g. MetaMask). However, lent coins are blocked for use elsewhere. Here, too, credit pools play a central role in providing for lending. Fluctuating daily interest rates are common practice for portals in this segment. Participation in networks can sometimes be a little difficult for beginners.
What Interest Rates Can I Expect when Lending Cryptocurrency?
In fact, higher interest rates are beckoning on centrally oriented platforms compared to classic crypto speculations with Bitcoins or Altcoins such as Ethereum. Centralized portals attract with interest rates in the range of two to six percent. Decentralized providers promise rather low interest rates in the range of one percent. Users who lend stablecoins earn more. Here, interest rates in the double-digit range are sometimes beckoning. As already mentioned at the beginning: Lending crypto capital is also associated with risks. In the past, there have been reports of embezzlement by dubious providers. There is also a general risk of default if loans cannot be repaid (on time) by borrowers. Underlying smart contracts of decentralized portals harbor the risk of a certain susceptibility to errors or can theoretically be attacked by hackers.
It is therefore important to choose platforms with correspondingly good hedging mechanisms and transparent business models. A large number of customers and good ratings are an important indication of seriousness and trustworthiness. Fluctuating interest rates should be taken into account when deciding on a loan. It is also important that crypto users who have decided to lend only provide funds that they can afford to lose.
Looking at the Interest Rates Alone is not Enough
In the end, it is recommended not only to include the APR (Annual Percentage Rate) as the achievable interest rate and the APY (Annual Percentage Yield) from the payout ratio in the decision-making process. The realistic return must be assessed in connection with possible fees. Finally, every crypto owner should be aware of one thing: The exclusive storage in the wallet and the value of the portfolio depends solely on the well-being of the market. Crypto lending can be a valuable extension of your own horizon. And it can also help to offset general inflation and short-term price slumps. Interest through lending digital currencies can and will definitely become an integral part of the investment strategy for “normal” crypto investors in the future.
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