Crypto lending

Crypto lending means temporarily lending your crypto in exchange for interest. The borrower later pays back the amount borrowed, along with interest.

What is crypto lending?

You can use crypto lending through a platform that connects borrowers and lenders. Interest rates vary by cryptocurrency and platform, and they can change over time.

A borrower usually has to provide collateral. This is extra crypto used as security for the loan. If the borrower can’t repay the loan, the collateral may be sold.

There are centralized and decentralized platforms. On a centralized platform, the company manages your crypto. On a decentralized platform, smart contracts automatically manage the terms. Smart contracts are programs on a blockchain that carry out an agreement.

An example of crypto lending

You deposit your crypto into a pool on a decentralized lending platform. Another user borrows crypto from that pool after first providing collateral.

The borrower pays interest, and you receive part of it as the lender. Your crypto may be locked up temporarily, so you may not be able to sell or withdraw it right away.

Why is crypto lending important in crypto?

Crypto lending comes up in news about DeFi platforms, interest on crypto, and borrowing options. News stories may also cover changing terms or falling interest rates.

It comes with significant risks. Crypto prices can drop quickly while your crypto is lent out. Centralized platforms can also be hacked or go bankrupt. On decentralized platforms, smart contract bugs can lead to losses.

Interest doesn’t guarantee a profit. Liquidity problems may also mean you can’t withdraw your crypto right away.