The ever-fluctuating crypto market has often been regarded as the finance of the future. However, what a lot of newbies in the industry fail to realize is that investing alone is not the only way to make money with crypto. One of the other ways to make money is by gaining interest through lending. Sound confusing? We got you covered.
Let's explore crypto lending to see how you can earn interest on crypto and the various factors that will help you boost your crypto earnings.
Earning Interest via Crypto Lending
Cryptocurrency lending is one of the most popular modes of Decentralized Finance (DeFi). If you're an investor, you can lend crypto to borrowers in exchange for cryptocurrency dividends. In simpler terms, you can earn interest on crypto by lending out to borrowers in lieu of interest.
Benefits Of Crypto Lending
- Acts as a passive income for investors
- Earn compound interest annually
- Trade, lend or withdraw your assets
Crypto Lending with Crypto Savings Accounts
Comparable to traditional savings accounts, one can put their crypto assets in a crypto savings account, which are then lent on your behalf by a third party.
There are various factors that affect the profitability of crypto lending accounts.
1. Coin Choice
With more than 5,000 cryptocurrencies in today's crypto market, it's pretty easy to get confused. The choice of your cryptocurrency will depend on a few factors, such as your expected returns, market conditions and how much risk you're willing to take.
There are certain stablecoins that are backed by the U.S. dollar, which makes them a less risky option, specifically, Tether (USDT) and USD Coin (USDC). But, some coins like Bitcoin and other altcoins are known for their dramatic swings in value which reduces your earning interest. Having said this, the interest rates for coins vary according to the bearish and bullish market phases.
2. Crypto Exchange
The compliance guidelines and interest rates for all crypto exchanges are unique. Needless to say, choosing the exchange that suits your requirements becomes all the more important. The exchanges that offer crypto lending provide two types of loans— fixed loans and flexible loans. Fixed loans provide higher interest than flexible loans as the interest rates are higher. This is because the fixed loan has a lock-in period of 7 to 90 days, whereas the deposit of a flexible loan can be withdrawn at any time.
Even though Binance is one of the largest crypto lending exchanges by volume, it is not available to U.S. citizens. Exchanges such as KuCoin even offer peer-to-peer lending.
High risks result in higher returns, so if you want to gain the best interest on crypto it is necessary to look into the risk management procedure of the exchange.
Almost all exchanges have fees that they charge for selling, buying, and even blockchain fees for wallet transfers and exchanges. If one doesn't pay much attention to these fees, it can add up to a big amount and significantly decrease your earnings, even before you start lending.
Some Of The Best Crypto Savings Accounts
There are many crypto savings accounts where you can earn the best interest on crypto. Here are a few:
BlockFi is one of the best crypto-based savings accounts that offer a relatively high yield to crypto investors.
Widely known for offering high-security measures to its customers, using Gemini one can earn up to 7.5% interest on their investment.
Another popular crypto saving account is Nexo, which provides about 12% APY. It has a minimum lock-up time of fewer than 24 hours, which means that the interest is paid on a daily basis.
Crypto.com offers interest in about 15 traditional cryptocurrencies and about 8 stablecoins.
Best known as a popular digital wallet, Coinbase can help you gain interest in crypto but doesn't lend crypto. It offers a decent 4% interest for its U.S. users.
Offering about 9.5% on USDT, Ledn is a reliable crypto lending platform.
Celsius Network is one of the highest yield savings accounts offering an incredible 17.78% reward rate to its customers. The program is unfortunately unavailable to U.S. citizens.
The Bottom Line
Lending can be a profitable boost to your crypto earnings if the correct choices are made. This guide helps you consider all of the factors to know in choosing the right crypto lending platform.