Lending crypto has become the new alternative to a traditional savings account. Instead of earning an interest rate that falls well below 1%, crypto lending allows you to earn interest rates that can reach double digits.
But is this modern approach to earning interest everything it’s cracked up to be? Here’s what to know before lending crypto, how it works, and the risks and rewards associated with the process.
Basics Of Crypto Lending
Having a surplus of crypto can be a great feeling, especially if it’s gaining more attention and going up in value. Wouldn’t it be amazing if crypto exchange platforms had a way you could capitalize off this without having to sell your crypto?
Look no further than crypto lending.
Earning Interest By Lending Crypto
Today, many exchange platforms allow you to earn interest on your crypto assets through crypto lending. When you invest your crypto with the platform for a designated period, you receive an interest rate.
The rate received will vary depending on a few factors. First, every platform decides its rate for each token. This typically doesn’t change too drastically across exchanges, but it’s in your (as a lender) best interest to seek out a higher rate of return. For some of the best rates currently available, sign up with Vauld today.
How you choose to lend can also impact the rate. The longer your crypto is kept with the account the more value you stand to gain. This will often depend on whether you choose a fixed or flexible deposit (more on this shortly).
When it comes to an annual percentage yield (APY), lenders can expect a bit of a difference depending on whether crypto or stablecoins are invested. Crypto’s average yield can fall between 3-8% due to its volatility, while stablecoins’ yield is between 5-25%.
Is Crypto Lending Different From Staking?
Crypto staking might sound very similar to crypto lending. Both investments see the crypto owner hold their assets with a platform, which in turn puts the crypto to work in exchange for more tokens later. But, yes, lending and staking are different.
When staking, you lock some of your cryptocurrency as a way to help a network validate transactions. Holding these tokens in the blockchain maintains the infrastructure’s protection and allows you to earn varying interest rates for your investment.
To summarize, the difference is that staking lets you earn interest on your locked crypto in exchange for securing a network, while lending lets you earn passive interest in exchange for playing a critical role in a platform’s trading.
Choosing Which Crypto To Lend
With so many options, the decision of which crypto to lend depends on what kind of return is desired. As mentioned previously, some coins offer higher rates, with stablecoins being among the highest. Volatile cryptocurrencies, such as Bitcoin, offer lower rates between 1-5% APR.
The best way to choose which crypto to lend is by lending multiple coins. Diversifying an investment is ideal in most scenarios, and maintaining various rates on crypto can help increase profits while managing risks.
Preparing To Lend Crypto
Crypto lending tends to quickly pique the interest of people looking to earn passive income, but that doesn’t mean it’s right for everyone. In fact, crypto lending may not be the right move if you have no tokens at the moment or couldn’t bear to be without the few you have.
When considering buying crypto for investment purposes, give it some time after the exchange to get a better understanding of how it might fluctuate before forgoing access to your assets. Purchasing certain cryptocurrencies is in and of itself an investment already.
However, if you have some excess crypto that you understand well and wouldn’t miss, then crypto lending is most likely a secure option for you. But keep in mind that if the perfect trading opportunity comes up and all your tokens are locked in, you may not be able to access them.
Fixed Vs. Flexible Deposits
Depending on how long you want to invest your crypto, you’ll choose between a fixed or flexible deposit. And the type of deposit is largely based on whether you are interested in long-term or short-term investing.
Fixed Term Deposits
A fixed deposit is popular among those looking to get the most out of their investment. Think of it as the crypto equivalent to a bank’s certificate of deposit. Fixed deposits allow you to lock your funds for a predetermined period to earn a higher interest rate.
Think of flexible deposits as savings accounts for crypto. You still earn interest, but at a lower rate than a fixed deposit. This is the best option for short-term investors or crypto owners looking to just passively build their wealth.
How Is Lent Crypto Used?
Now that you’ve decided to invest your crypto and have chosen an exchange platform and deposit that works best for you, you’re ready to earn money from your assets. You might be wondering, “What exactly is being done with my crypto?”
The short answer is that the platform connects a lender and borrower. As a lender, you fund the loan automatically (using the platform) and earn interest for your investment.
Borrowing A Crypto Loan
When you, the borrower, are interested in receiving a loan but don’t want to sell your crypto, you can take out a crypto loan. You select a platform, give your crypto as collateral, and pay down the loan to receive your crypto back.
For example, let’s say Person A invests one bitcoin with Vauld as a fixed deposit. Person A immediately starts to earn interest on their investment, but their asset is currently locked in to get the highest interest rate.
In the meantime, Person B might need fiat currency due to an emergency or a major purchase such as a car. They could sell their crypto to get the money — or they could keep their crypto, partner with Vauld, and take out a crypto loan instead.
Person B can store their crypto with Vauld and borrow up to 66.7% of their crypto’s value. After instant approval, their crypto is held as collateral until paid back in full along with interest. The earnings of Person A are used to help fund the borrowed amount of Person B.
Crypto Lending Risks
The risks associated with crypto lending depend mostly on the volatility of the token being lent and how safe and trustworthy the exchange platform being used is known to be. Make sure the platform you partner with is transparent about their practices and how they’re funded.
At Vauld, for example, we offer complete transparency for all our products. What you see is what you get.
Hackers And Bad Actors
Another risk involved with crypto lending is hackers. When it comes to hackers, look for a platform that takes every necessary precaution in protecting your assets. This includes having multi-factor authentication and user alerts.
The borrowers being given a loan don’t go through a credit check and might not necessarily be the most reliable borrowers. Because of this, it is not unlikely that a borrower will default on their loan being funded by you, the lender.
However, since the borrower put up their crypto as collateral, you (the lender) would simply earn a portion of the crypto that was not paid back. It is still important to read the terms and conditions of the platform you choose and make sure your crypto is secure in case of a default.
Choosing The Right Platform
Crypto lending isn’t for everyone. Finding the strategy that works best for you will only be successful if you choose the platform that cares as much about your investments as you do. Whether borrowing or lending, choose Vauld for the best experience all around.
Vauld is a global digital crypto platform offering the highest interest rates on major cryptocurrencies in the industry. These include Bitcoin, Ethereum, Dai, and an extensive list of other tokens you can find here.
By partnering with Vauld, you’ll experience competitive rates, regular upgrades, and transparent business practices, all while receiving the highest quality of customer experience.
Interested in lending, borrowing, or simply building your wealth using cryptocurrency? Sign up with Vauld today and start making the most of your crypto endeavors.