Crypto Lending: The Brief Introduction on the Basics

First published
February 4, 2022
Last updated
June 21, 2022

Since its inception, blockchain technology is actively disrupting the financial industry, including cryptocurrency. One of the rising trends among crypto enthusiasts is the emergence of crypto lending. As an alternative for hodlers to increase their assets’ productivity, crypto lending is becoming a pivotal instrument in the crypto ecosystem. What’s unique about using Blockchain in the economic system is that the rules are defined by smart contracts and algorithms to ensure the transactions are autonomous and decentralized.

In the case of crypto lending, the idea is to establish a business model that’s not depending entirely on the relationship between lenders and borrowers. Blockchain enables that and is currently disrupting the traditional peer-to-peer lending, banks, and other financial institutions in the way they do lending and borrowing. Although the technology is still evolving, many crypto lending platforms emerged using Blockchain to institute their services, whether centralized or decentralized (more on this later). But first, let’s dig in on what exactly is crypto lending.

What is Crypto Lending?

An emerging trend, crypto lending is the act of lending through crypto exchanges or various lending platforms. An interest will incur at an agreed rate for the lending to happen. In a nutshell, it’s a type of crowdfunding where lenders (individual investors) are connected with borrowers through an intermediary, in this case, the crypto lending platform, acting as a trusted third party.

For crypto lending to happen, it needs three agents such as:

  • The individual investors or lenders who provide the fund. This could be HODL-ers (people who hold cryptocurrencies and wait for the value to appreciate) or crypto enthusiasts who are keen on growing their assets’ productivity.
  • An online platform that manages the transaction. There are many different kinds of crypto lending platforms; some are entirely autonomous and decentralized. Others are centralized with a company or a group of people running behind the scenes.
  • The borrowers. This could be businesses or individuals who are looking for funding, usually using fiat or crypto assets as collateral to get the borrowed funds.

Crypto lending has several advantages, which makes it appealing for financial actors. While in bank lending, you’ll get enabled in bureaucracies and lengthy verifications processes such as credit score, which takes time to build. Things can move reasonably quickly in crypto lending because you won’t need a credit score to access the loan. Furthermore, crypto loans are more accessible than bank loans that set the interest rates, amount, and loan period. In crypto, you can tailor it according to your needs.

The Crypto Lending Platform

It is more beneficial to lenders when they borrow funds from crypto lending platforms. The collateral is more liquid than bank lending. Typically, borrowers need to collateralize over 100% or more of the amount they want to borrow. The high loan ratio is due to the volatility of cryptocurrencies.

Most of the time, there is no lengthy paperwork or processing time involved with crypto lending. Everything is digital and can be completed within minutes to hours, making it very appealing to users. The variety of cryptocurrencies prompted many crypto lending platforms, regardless of types, to allow users to switch between assets. For example, a user can deposit in bitcoin and borrow another crypto on the same platform.

Types of Crypto Lending: Centralized vs. Decentralized

There are two different types of crypto lending platforms: centralized and decentralized. The main difference between the two is who or what is handling the financial transactions, a business/individual, or a set of protocols.

Centralized Finance (CeFi)

CeFi platforms are companies or a group of individuals that handle the user’s onboarding process, which typically involves verification of the Know-Your-Customer (KYC) process. They act as middlemen and are responsible for exchanging cryptocurrencies and fiat money using a custodial system that mirrors decentralized protocols to protect the asset. One thing to note from CeFi platforms is that they use margin lending to attract users. They’re also able to offer higher interest rates and flexible terms to both lenders and borrowers compared to decentralized platforms.

For traditionalists who are exploring the world of cryptocurrencies, investing in CeFi platforms might be an ideal option. You still get the human support at your disposal and can negotiate the terms to grow the digital assets easily and safely. Furthermore, the deposits and withdrawals are still recorded on the public Blockchain, visible to everyone.

The downfall of CeFi could come across as contradictory with the blockchain principles that are trustless and utterly free from third party governance. If any, the interest payments are at the CeFi platform’s disposal and not recorded on the public Blockchain. Suppose you’re looking for something that’s fully autonomous and not controlled by anyone. In that case, a decentralized platform is the other option.  

Examples of Centralized Finance (CeFi) platforms:


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Users can sign up easily within minutes. Once they go through the KYC process, they can begin earning attractive interest in-kind immediately.

Celsius Network

If you’re familiar with crypto lending markets, you’ve probably heard about Celsius. As one of the CeFi pioneers, Celsius offers a range of financial services to its large user base. From crypto interest accounts to gold interest accounts to having its own digital native token CEL, users can get a higher interest rate if paid in the CEL token.

Founded in 2017, Celsius aims to revolutionize and disrupt the financial industry dominated by banks through its attractive interest rates and diversified products.

Decentralized Finance (DeFi)

The term decentralized finance (DeFi) has been thrown around a lot lately. And that’s not without reason; DeFi platforms are genuinely decentralized and autonomous, which makes it sound like something from the future. The truth is, the DeFi movement is already taking off, and there is no sign of slowing down. In DeFi, financial transactions such as lending and borrowing are handled by a set of codes instead of people. Users need to trust and depend on the algorithmic protocols in the form of smart contracts to automate the distribution of crypto loans and payments.

The DeFi platform is more transparent than CeFi because anyone can access the protocols. All transactions, borrowing, and lending are recorded on the public Blockchain. Nothing is hidden from users, including interest payments and other transaction-related fees. DeFi platforms don’t require the KYC verification process and are non-custodial, making it trustless. Like CeFi platforms, DeFi also offers interest rates on crypto loans depending on the market’s supply and demand. However, they’re generally lower than CeFi rates.  

Examples of decentralized finance (DeFi) platforms:



Bundled with a quirky unicorn logo, Uniswap is a DeFi exchange that allows you to swap any ERC-20 token in its platform. You can also earn fees by adding liquidity to the existing pool or creating your own. What’s unique about Uniswap is it’s designed for the public good, meaning it acts as a tool for the community so they can trade tokens without fees or intermediaries. And unlike other exchanges that rely on buyers and sellers, Uniswap uses simple math equations, pools of tokens, and Ethereum to determine prices and executes trades.


Maker is a DeFi platform for borrowing and lending, and also the creator of stablecoins Dai and MKR, which are ERC-20 tokens. Like any other DeFi platform out there, Maker is free from human governance and other third-party intermediaries. The platform keeps Dai at $1 using a system of collateral and price feeds, which is carefully reviewed by MKR token holders. Dai is used in many DeFi projects and one of the fastest-growing stablecoins out there. Many have considered Maker to be the first successful DeFi platform that is built on the Ethereum network.

The technology behind crypto lending is nascent and evolving rapidly. Nevertheless, it’s safe to say that crypto lending is here to stay. It will hopefully become more mature as more platforms join and contribute to the ecosystem.

Disclaimer: By using Hodlnaut, users expressly acknowledge and agree to the Terms of Use listed on our website at This includes the relevant risk warnings applicable to you as a user of Hodlnaut's services, prior to/when carrying out Digital Payment Token (DPT) transactions. This article is for informational purposes only, and is not an offer nor a solicitation to invest in DPT, securities, funds, partnership interests or other investments or funding or purchasing loans. It is the user's sole responsibility to conduct due diligence and research extensively into each DPT and platform, and understand that the volatility and unpredictability of the price of DPT may result in significant loss over a short period of time. No information on Hodlnaut should be considered to be business, legal, financial or tax advice regarding the use of Hodlnaut. Users should consult their own legal, financial, tax or other professional advisors before using Hodlnaut. Please refer to our website at for the full Terms of Use.

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