Crypto Lending: A Beginner's Guide

Crypto lending can be a great way to generate additional income from your crypto portfolio, without having to sell off any of your holdings. In this guide, we'll show you how to get started with crypto lending, and how to maximize your returns.

In partnership withYouHodler

The crypto lending sector had so much growth over the last few years. Why has it experienced this rise? What guardrails protect adopters of this emerging sector?

These questions weigh on the minds of those who want to venture into the world of crypto lending. This article answers these questions and many more.

 First, let's take a short overview of what crypto lending is.

What is Crypto Lending

Crypto lending is the process of putting down crypto for borrowers to access as loans. Borrowers pay interest on these crypto loans.  Lenders then earn passive income from interest payments generated from deposited crypto assets.

Crypto Lending Platforms

A crypto lending platform completes the lending process. It serves as the intermediary between the lender and the borrower.

 The platform enables users to unlock the value of their crypto by allowing them to earn interest. These interest rates are usually better than those traditional institutions offer.

 Crypto lending platforms make money for themselves through interest on loans and fees.

Learn more

Curious about what to look out for when choosing a Crypto lending platform? Read more about that here.

How does Crypto Lending work?

Crypto lending shares similarities with traditional lending. A lending platform offers investors the means to earn interest on crypto deposits. The investor then opens a savings account with the platform to make such deposits.

The lending platform offers these deposited assets to other investors seeking crypto loans. The borrower secures this loan by providing collateral exceeding the loan amount.

 The borrower also pays interest on the secured crypto loan. LTV, collateral, and interest rates are the most important tenets of crypto lending.

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Want to take a deep dive into the world of crypto lending?

How to Earn Interest from Lending Crypto

You can start earning interest by lending out your crypto by following these steps:

  • Create an account with a crypto lending platform.

  • Determine the terms favorable to you, such as length, crypto asset, and interest rates.

  • Make crypto deposits into the account.

Some platforms allow you to earn interest daily and withdraw your crypto anytime. An example of such a platform is YouHodler.

Learn more

Want to give it a try? You certainly need more information. Check this detailed guide on earning interest with your crypto assets.

Crypto Interest Tax

When you earn interest from an investment, you are most likely required to pay taxes on your returns.

You are subject to capital gains taxes when you buy and sell an asset for investment purposes. You are also subject to income taxes when you earn crypto interests through lending.

The percentage of this tax and what makes up a taxable event vary from location to location. It is vital to understand what taxable events apply in your locality.

Learn more

You want to earn via crypto without running into trouble with the IRS. Find out more information here about crypto interest taxes.

Why are crypto interest rates so high?

Crypto interest rates are mouth-watering, sweet, and attractive. They appeal to our inner urge to always want more with less work.

 As a savvy investor, it is good to recognize opportunities to maximize gains. It is also more important to know the whys, the hows, and what if's for every opportunity that comes.

 This begs the question again: Why are crypto interest rates this high?

 The infancy of the industry and lower overhead costs contribute to the high rates you see on these platforms.

Learn more

Find out more in this article on why and how crypto firms' interest rates beat traditional firms.

Crypto Lending Safety

Despite its popularity and high-interest rewards, safety is a real cause of concern.

Estranged crypto lending platforms like Celsius and Hodlnaut highlight these safety concerns. These lending platforms have paused operations, citing market conditions as the cause. They have also held onto the assets of their users.

This begs the question: Is crypto lending safe?

Safety in crypto lending has a lot of catching up to do when compared to the world of traditional finance. Volatility, security threats, and the lack of adequate regulations render it unsafe. 

It's important to note that several crypto lending platforms are reputable and reliable. Their mode of operation offers a way around these concerns.

 Investors interested in crypto lending should learn about the risks involved. They should also seek reputable platforms that mitigate these risks.

Learn more

Learn about reputable crypto lending platforms that ensure the safety of your assets.

Crypto Lending vs. Crypto Staking

Crypto staking is the act of pledging your crypto assets to support a blockchain network. You receive interest or staking rewards for this pledge.

Although crypto staking and lending share similarities, there is a difference between them. The major difference is what your asset is being used for during lock-up.

Learn more

Curious about the difference? Lending or staking crypto, which is the best for you? Find out more by reading this guide.

Crypto Lending's Growth in the Last 3 Years

The crypto lending market has grown massively. Generally, the market has hit more than $10 billion since 2019.

This growth results from massive adoption. The high-interest rates offered to lenders beat those offered by traditional banks.

For example, the lending platform, YouHodler, offers its users interest rates as high as 8% APY. In contrast, the best traditional banks provide users with interest rates as high as 1.25% APY.

When a sector progresses over a couple of years on a grand scale, it means something is working well. The industry is still in its early stage; thus, we can expect further growth in crypto lending in years to come.

Learn more

Read more about crypto lending growth and understand what it means for you here.

Bottom Line

Crypto lending is innovative and disruptive. It's among the stack of crypto services that are giving traditional finance a run for their money.

Crypto lending and lending platforms are here to stay. They have experienced rapid growth over the last 3 years, and the future remains very bright for them.

It's up to you to join the bandwagon and use them to reach your financial goals. If you choose to join, consider its safety, the platforms you want to use, and how you want to earn from it.

May the "crypto lending force" be with you!


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