The Pros & Cons of Crypto Lending Platforms

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

Cryptocurrencies today offer many avenues to grow savings and boost investments. One of them is through crypto lending. Previously, most people would trade their assets or simply HODL (buy and hold) to grow their capital. Hodling has been a purposeful move to limit supply in the market. However, it doesn’t convey a productive usage on the crypto assets.

With crypto lending, you can earn interest from your crypto asset by depositing it into the lending platform. Depending on the platform, both individuals and corporations have faster access to loans than traditional lending platforms that are strictly navigated by state regulations, reliable credit scores, and various due diligence.

Crypto lending platforms is set to bridge the gap between borrowers and lenders. Besides the streamlined process to lend and borrow crypto assets, most crypto-lending platforms offer attractive interest rates at around 8% on the coins. This is good news, especially when compared to the savings account from banks that provide around 1% of return on the assets.

How Does it Work with Crypto Lending?

It’s quite a straightforward process when it comes to crypto lending. The lender deposits their crypto assets such as Bitcoin or other stablecoins to a lending platform. The lending platform proceeds to make the accumulated funds available to borrowers, either individuals or corporations, at an agreed rate. Borrowers take out a loan for a specified period and return the funds when the period expires and the agreed interest rate.

As with any financial move, there are always risks involved. To minimize the risk of default, lending platforms usually setup collaterals or other loan-backing systems and make sure borrowers have good financial standing.

The Advantages of Crypto Lending

Crypto lending offers a series of advantages that are lucrative to hodlers. The most appealing advantage of crypto lending is favorable interest rates and transaction fees. The fact that you do not need a bank account to transact is also helpful, as this could be a game-changer for many people, considering the number of unbanked adults in the world has reached 1.7 billion. Moreover, the procedures are often simplified and less time-consuming than traditional banks of other lending institutions. You’ll also have access to a more diversified loan portfolio, and since it’s done mostly online, the transaction is not limited to a specific geographic area or nationality.

The Disadvantages of Crypto Lending

So is it all that it’s made to be? There are always things that you need to know and consider before making any financial decisions regarding investments. Lending and borrowing through crypto lending platforms are no different. The most glaring risk is the higher chance of default than traditional loans, which are often federally insured. None of the crypto lending platforms are insured, at least not in the same capacity of the traditional loans. And since it’s conducted entirely online, it is prone to hacks and other online attacks.

Cryptocurrencies, as we all know, are volatile, and it’s easy for lenders to end up losing more than earning. These platforms’ tax implications are also unclear as we’re dealing with newer technology, and many jurisdictions have yet to set up clear procedures on dealing with crypto assets.

Whether we agree or not with how cryptocurrencies are being perceived and handled in states worldwide, the crypto industry is proliferating. The rising of crypto lending will also offer unique opportunities for crypto investors and enthusiasts to earn interest, gain liquidity, and grow their crypto assets’ movements.

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