6 reasons crypto lending is very profitable

One of the unique ways to earn yield from your digital assets is by crypto lending. Crypto lending refers to depositing your assets into a crypto lending platform and earning interest when the platform loans that crypto to a borrower. A crypto interest account usually has interest rates far higher than traditional savings accounts. But why is crypto lending such a no brainer? Let's find out.

Crypto Lending in a Nutshell

Do you know how crypto lending works? When you deposit your crypto assets into lending platforms, they loan your deposited assets to a borrower. However, the crypto lending platforms take a risk because there are no credit history checks when someone borrows crypto from them. Instead, they rely on a secured loan, where the borrower deposits a certain amount of digital assets (their crypto collateral) and is allowed to borrow based on the deposited value.

This is known as the Loan to Value Ratio (LTV). Most crypto lending platforms have an LTV of 50%, meaning that the borrower can only borrow crypto up to half of the value of their collateral. In case the value of the deposit starts to drop, the lending platform will ask the borrower for more collateral to cover their loan. If the borrower fails to deposit this collateral, they liquidate the borrower's deposit to repay the loan funds to the lenders.

Increasing Your Yield With Crypto Lending

As a holder of digital assets, you want the value of your funds to increase. In traditional finance, you would deposit fiat currency into a bank account and earn interest from the bank's loans to its clients. A savings account typically pays a fraction of a percent, despite the borrower paying the bank a lot more in interest. Depositing your assets into a crypto lending platform will help you realize a profit with a lower level of risk to your digital currency.

In a crypto lending program, the lending platform splits the interest they get from a client with the lender. Interest rates for these accounts are higher than traditional finance since the crypto market has many people who want loans for various purposes. These crypto lending platforms are an excellent way to earn passive income streams for a lender. A crypto holder can earn up to 20% APY interest by lending digital assets. Crypto lenders can interact with crypto investors through the lending platform without knowing who is who.

Why Is It So Profitable to Lend Digital Assets?

Crypto lending is profitable because of several factors that each contribute to the need for crypto assets on the market. Among them are:

Demand

Recently, there has been a massive demand for crypto loans as more and more people realize how good they are. With no credit checks and a low bar for entry, crypto loans are among the most accessible financial instruments to leverage. Crypto loans service individuals and companies that don’t want to or cannot go through the traditional loan process.

Supply

Crypto lending platforms aim to lend digital assets to borrowers who want them. There is a limited supply of lenders compared to borrowers, and so the interest rates to attract new deposits are higher.

Rate of Growth

While traditional financial institutions offer interest rates that are typically a fraction of a percent on a savings account, crypto lending platforms offer several percent on theirs. Additionally, many of these lending platforms offer compound interest on their savings accounts, increasing the growth rate over the years. Deposited funds grow much more rapidly in these accounts than in standard savings accounts.

Early Adoption

Currently, not many people know that these crypto interest accounts exist. The law of supply and demand suggests that, when this happens, the interest rates may drop on these accounts. Getting in early ensures that you can access the highest interest rates before others show up.

Regulations Slowing Supply Mechanisms

Regulations from the SEC have hampered the growth of these crypto lending platforms because individuals are wary about depositing their funds into these accounts. The lower supply means that interest rates will remain high for the time being, as long as these regulations continue to impact the decisions of other crypto holders.

Increased Margin Trading

Margin trading allows a speculator to borrow funds from the lending platform and trade on the market to make a profit. With the market's volatility making it easy for intelligent investors to make a profit, many use margin trading to leverage much more significant sums than they own. There is a risk associated with this type of trading, but there’s also the potential for massive rewards if they’re right. More margin trading increases the demand for crypto assets to lend, which further fuels lending profitability.

Other Factors

While these are the significant factors impacting the profitability of crypto lending, they aren’t the only ones. Some coins tend to have more demand than others because of their utility or the potential profit they can make in margin trading, so demand for those coins rises.

Lending Digital Assets to People Who Want Them

Where's the best place to get started with crypto lending? Several competitive crypto lending platforms offer competitive interest rates to crypto owners. If you lend crypto with them, you can earn quite a bit from their interest-bearing accounts.

Celsius Network is a wealth management platform that allows users to lend and borrow crypto and get paid interest in the digital currency of their choice. They pay interest based on tiers, starting at bronze and going to platinum, with each tier earning more interest based on their level. Celsius even has their own native token (CEL) that earns extra interest compared to getting paid in the same currency deposited into the platform.

Centralized and Decentralized Lending

Crypto lending can happen through a centralized (CeFi) or decentralized finance (DeFi) methodology. DeFi lending usually uses smart contracts to finalize its borrowing and lending details, whereas CeFi lending utilizes a central authority. Unlike their centralized counterparts, decentralized finance platforms don't have any individual at the center of their operations. If things go wrong because a smart contract was coded poorly, lenders can lose their deposits. Centralized finance platforms are better for lenders than these DeFi platforms.

Should You Lend Your Crypto?

The simple truth is that crypto lending has the potential for massive gains. In the past, holding onto a digital asset and waiting for it to appreciate was the best way to earn value on crypto. However, with advancements in blockchain technology, there are far better ways to accumulate value from one's crypto assets.

Cryptocurrency lending is one of the lowest-risk and highest-reward methods for increasing one's digital asset holdings. If you had the option to earn low-risk rewards for your digital holdings, why would you not do so? Cryptocurrency lending gives you a way to earn more from your holdings than any other methodology.

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