Crypto Lending: What Is It & How Does It Work?

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People who own cryptocurrency often hold on to their assets till the price appreciates. Although it is a wise thing to do, you might not want to leave your crypto in the wallet, specifically when the current interest rates are not impressive. So, what should you do? Well, look for ways to grow your existing digital currency. If you are thinking about how to do that, then fret not! You can simply try crypto lending. There is no need to worry if you are hearing the term for the first time. This is because it is just as easy as subscribing to Spectrum Internet and cable Tv services.

What’s Crypto Lending?

You can think of crypto lending as a branch of decentralized finance that lets investors lend their digital currency to borrowers. But how will this benefit the lenders? Well, they get to earn interest payments which are also popular as crypto dividends. Let’s have a look at an example. Suppose you have 10 Bitcoins. You get to earn significant income (passive) with them. All you have to do is to deposit these Bitcoins in a lending wallet. You will then start to get interest. You can get this month every week or month. Now, let’s talk about the interest rate. It can vary. The interest rate can be 3% but can go up to 7%. In some cases, the rate can go even higher; sometimes, they go up to 17%.

Borrowers can also stake crypto. They can do it either to repay loans or in the form of security money. This way, the investors can sell the cryptocurrency if the borrower is not able to repay the loan. Crypto lending can cause some loss to the investors. But don’t worry! There are many platforms that can recover the losses of investors. And they do that by asking borrowers to stake twenty fine to fifty percent from the loan.

The Workings of Crypto Lending

Crypto lending takes place with the help of a third party that connects lenders with borrowers. These lenders are called the “First party.” These are the people who are holding on to their crypto, waiting for the value to increase. The lending platforms represent the second party. And the third party is the borrowers. These are the people who will receive the loan. The process of crypto lending is not very complicated. It all happens in some very simple steps. And they are as follows:

  • The borrower visits the crypto lending platform and asks for a loan.
  • Once the loan is accepted, the borrower is supposed to stake the crypto collateral.
  • Until the loan is paid back, the borrower cannot get the stakes back.
  • Lenders, with the help of the platform, will fund the loan.
  • Investors will start receiving interest payments or crypto dividends.
  • The borrower will get the crypto collateral back when the loan is paid.

How to Borrow Crypto?

If you are a borrower and want to get a loan, the first thing you should do is to select the most suitable platform from the plenty of options available. Thus, you will need to do a bit of research to find the one which you think is the best. Also, when choosing the platform, you will have to make sure that it is safe. After you have selected the platform, you will have to see if they are offering the kind of crypto that you want. This is necessary to do because not all platforms offer all cryptos. Moreover, you will need to determine the annual returns of your cryptocurrency you wish to lend.

Before getting the loan amount, you will have to determine the collateral you can set. You have to know the loan-to-value ratio, which is equal to the total amount of the loan and the value of your collateral. For instance, if you are taking the loan of let’s say $10,000 then the collateral will be $5,000. This means that you would be getting $5,000.

Lending Cryptocurrency the Right Way

The reason why investors are so eager to try crypto lending is that they will be getting a good return on them. You can imagine it as being your savings account. If you want to try lending your crypto, you should first find a reputable, trustable platform. You will then have to think about the type of exchange you want; flexible or fixed. After that, you will have to choose which coins to lend. It will depend on two factors. One is the market situation and the second is the return that you are seeking.

Conclusion

Crypto lending can be a great way to earn passively. If you choose to lend crypto, you will be getting crypto dividends. And this will help you increase your digital currency even when the market is fluctuating. This is hands down one of the best ways to make the dough, especially for those who want to have some additional funds to meet their expenses.

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