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Learn how to invest in crypto lending for great returns

Relite Education
Aug 9, 2021
5 min read

Crypto lending is one of the easiest ways to earn from cryptocurrencies. It is a form of crypto passive income with growing popularity amongst traders and “hodlers”. Investors are gaining enticing returns from lending their crypto assets. An investor can earn between 1% and 17% APY on the principal amount per financial season, depending on the strategy. This article will take you on a jumpstart course to understanding the basics of crypto lending and finding your best lending strategy and the best course of action to get such lucrative returns.

What's crypto lending?

Crypto lending is locking cryptocurrencies into crypto platforms to generate a kind of dividends from the lending activity. The rapidly growing blockchain lending segment is available to users via centralized and decentralized crypto lending platforms for cryptocurrencies and stablecoins.

Cryptocurrency lending platforms

These are online blockchain lending platforms where anyone can lend their crypto assets in exchange for interest. Crypto lending platforms cater to two groups of crypto traders, namely:

  • Lenders – Those who provide the crypto assets for lending
  • Borrowers – Traders in need of loans in crypto

As a cryptocurrency lender, earnings are straightforward. You provide liquidity to a crypto lending platform, which offers liquidity to borrowers. In return, you get a percentage of the interest of the liquidity. Interestingly, you can also earn as a borrower.

Earning as a borrower requires a comprehensive knowledge of the crypto lending landscape. You require accurate information on the parameters of the operational crypto lending platforms. To increase your returns from crypto lending activities, you need to identify platforms with the lowest borrowing rates and the highest annual percentage yield (APY).

For instance, platform A offers an APY of 20% on $ROG, while platform B charges a 4% interest on $ROG. You can borrow from platform B at 4% and lend to platform A at 20% to earn the percentage difference. This APY chase may be time-consuming, but the strategy will help improve your total gains.

Another blockchain lending strategy is lending or borrowing high-risk-high-reward crypto assets. Lending platforms feature different cryptocurrencies and stablecoins. Generally, trading in stablecoins provides a steady, low return for lenders. On the other hand, volatile crypto assets give opportunities for great returns with an increase in risk.

Is cryptocurrency lending safe?

A common question we always come across when handling cryptocurrencies is the safety of the operations in the discussion.

Cryptocurrency lending and blockchain lending platforms are both safe; however, as with all investments, there is some level of risk. The three significant risks any investor faces, regardless of the lending platform, are:

  1. Impermanent Loss
  2. Flash loan attacks
  3. Rug pulls (though this may depend on the platform)

Before lending on any platform, it is prudent to conduct a thorough check to determine the risk level of participating.

Investors also face a default risk; nevertheless, crypto and Bitcoin lending platforms have systems to prevent huge losses from this risk. When taking a cryptocurrency loan, lending platforms require borrowers to submit loan security of 25%-50% of the loan value. In case of a default (price going against you), platforms quickly recover their losses by selling the security assets.

Our suggestion for all users who plan on participating in cryptocurrency lending engages in various due diligence to minimize potential risks. This includes checking the history of the blockchain lending platform and project. Individuals are also advised to visit forums and read first-hand experiences of fellow users who’ve used such cryptocurrency lending platforms. This is a great way to gauge the level of security and trustworthiness of a platform. 

Another important aspect of minimizing risks is ensuring full knowledge of regulatory information. Is the cryptocurrency lending platform regulated to offer the services they’re advertising and what are their customer’s complaints procedures should any possible issues arise?


What are some of the best passive crypto income platforms?

To maximize yield from crypto lending, one must consider the crypto lending platform. Aside from APY averages, these are other pivotal parameters to check when evaluating lending platforms:

  • Interest rates for borrowers
  • Fees
  • Collateral borrowers have to pay
  • Lending duration
  • The platform's risk and record of accomplishment

From our analysis, platforms like Celsius and Youhodler satisfy the basic requirements while providing up to 17.78% and 12.7% yield, respectively. It is also crucial to consider the geographical area of operation. For instance, Youhodler restricts U.S citizens from participating on its platform while Celsius is open to U.S citizens.

In addition, your geographical area determines the tax your local authority requires for gains in the cryptocurrency industry. For instance, in the U.S, property tax applies to any gains from cryptocurrency activities. Citizens can use tax-lowering strategies to minimize their tax obligations and maximize their crypto earnings. Luckily, there is crypto tax software available to simplify filing tax returns. You can read more about the best crypto lending platforms in our in-depth analysis of the market options.


Can I lose my collateral if I take out cryptocurrency loans?

As in traditional finance, you only lose your collateral when you default on crypto-backed loans. However, crypto lending platforms provide other repayment options before reaching out for your collateral. For example, you can add more collateral to avoid liquidation of your positions when the market goes against you.

What will the future of crypto lending look like?

The future of crypto lending is already taking shape. As more traders opt to invest in crypto lending, new trends emerge to match the market shift. From complaints such as high gas fees and inconvenience in cross-chain lending, traders influence innovation in the crypto lending platforms.

This is the reason we are building the upcoming Relite platform. Having understood the market demand, the platform aims to become the preferred cross-chain crypto lending solution with sustainable fees when executing smart contracts. Cross-chain services are especially pivotal in an ecosystem with numerous protocols and even more crypto assets to trade. Relite is a practical example of future platforms as it covers the current and emerging demands of the crypto lending market.

People also ask (FAQs)

Is crypto lending safe? Yes, crypto lending is safe; nevertheless, there are risks within the crypto lending industry, as with all investment opportunities. To minimize losses from these risks, traders must conduct their own due diligence before participating in lending activities.

Is crypto lending profitable?  Crypto lending can be profitable if you know what you are doing. Depending on the annual percentage yield (APY) that is achieved, traders can earn decent returns from their investments. To maximize profits on crypto lending, consider the strategies we list in this article.

How does cryptocurrency lending work? Crypto lending takes place in the following steps:

  • A borrower requests a loan from the lending platform.
  • The lending platform evaluates the loan.
  • Following approval, the lending platform requires the borrower to deposit their cryptocurrency as security for the loan. The percentage varies from platform to platform.
  • The lending platform uses assets from lenders to fulfill the loan request from the borrower.
  • Investors/lenders receive interest periodically proportional to the amount of crypto assets.
  • Once the borrower repays the loan, the lending platform unlocks the borrower's crypto collateral back.

What is the best crypto lending platform? To trade in the appropriate crypto lending platform, consider the following:

  • Interest rates
  • Lending duration
  • Fees
  • Geographical location support
  • Required collateral for borrowers

Platforms will vary on these factors, with very few actually providing your desired sweet-spot combination. Platforms like Celsius, Binance, and BlockFi are some of the best crypto platforms. For more on crypto lending platforms, consider our article comparing the best available lending platforms in the market.

Is it better to up the lending rate when a crypto is in a downtrend? To cover the potential loss from the downtrend, increasing the lending rate is a practical option; however, it will affect the appeal of the cryptocurrency to borrowers. In case of a change in trend, the higher lending rate will influence the cryptocurrency's borrowing rate. Platforms must therefore have a comprehensive knowledge of market shifts before effecting any changes in lending rates.

Our Verdict and Key Takeaways 

To summarize our opinion, there exist several great cryptocurrency and Bitcoin lending platforms in which users can participate and make great returns with their assets. The evolution for many of these platforms which have resulted in great ease-of-use and user experience means that the option of blockchain lending is a viable option for many. 

However, we must make clear that as with all investments, there is always risk involved. Crypto lending should only be undertaken after thorough due diligence is performed and users are certain of the pros and cons involved. 

DISCLAIMER: This article does not constitute financial advice in any form. Readers are expected to be fully aware of any risks involved in crypto lending and should only participate after strong research. 

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Swipe left
Crypto lending Platform
Centralized or Decentralized?
Rating out of 5
Interest Rates
BTC
ETH
USDT
DAI
XRP
XLM
Aave
BlockFi
Cake
Basic
-
0.0%
0.1%
2.7%
-
-
Celsius
Crypto.com
Nexo
Max
-
0.0%
0.1%
2.7%
YouHodler
Binance
CoinLoan
Decentralized
3.2
Basic
0.5%
0.5%
9.3%
8.5%
3.5
-
-
-
Centralized
Max
5.0%
4.5%
9.3%
8.5%
-
-
-
Decentralized
3.0
Basic
5.0%
5%
8.0%
-
-
-
-
-
-
Max
7.5%
7.5%
8.0%
Decentralized
4.0
Basic
Max
Basic
Max
4.4%
5.3%
8.9%
8.9%
2.5%
3.1%
6.2%
6.3%
11.2%
11.2%
3.1%
3%
3.0
Centralized
1.5%
3.5%
6.0%
6.0%
-
0.5%
8.5%
8.5%
14.0%
14.0%
-
5.0%
Centralized
3.7
Basic
Max
Max
Max
Max
4.0%
4.0%
4.0%
4.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
12.0%
12.0%
Centralized
Centralized
Centralized
3.8
3.7
3.5
Up to 12.7% for all 25 supported crypto assets
Up to 7% for all 58 supported crypto assets
Up to 12.3% for all 18 supported crypto assets

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