Table of Contents
- What is crypto lending?
- Parties involved in crypto lending
- Advantages of crypto lending for borrowers
- Advantages of crypto lending for investors/lenders
The cryptocurrency industry has grown stronger providing more investment and saving opportunities to its users. Crypto lending is one of the trending topics in the crypto industry that allows investors to earn interest on cryptos without selling them. Both borrowers and investors are increasingly adopting crypto lending making it hype. In this article, we will discuss the main advantages of crypto lending for both borrowers and investors.
So, let’s get started.
What is crypto lending?
Crypto lending is a process that allows investors to lend their digital assets to earn interest in exchange. However, the ownership of their assets is maintained.
Instead of HODLing cryptos to wait for value appreciation crypto lending is an excellent investment strategy to make money with idle cryptos.
Parties involved in crypto lending
Crypto lending involves the following three parties.
- The investor/lender is the one who wants to lend his cryptos to grow his income.
- A borrower is the one who requires funds to fulfill his whatever need.
- A crypto lending platform is an online exchange or platform that connects lenders and borrowers.
Advantages of crypto lending for borrowers
There are different types of cryptocurrencies thanks to which you can have passive income. Investing in stocks, peer to peer lending or crypto lending are one of the most famous ones. Each of them have various advantages and you should decide on the best option for you. There are many reasons why to choose crypto lending as a borrower. The following are some of the benefits of crypto lending for borrowers.
In a traditional bank loan, borrowers have to pay high-interest rates for securing a loan. It is probably because it involves the running costs of financial institutes.
While in crypto lending the interest rate charged from borrowers is far lower because it does not involve any middleman fees.
In traditional loans, the involvement of middlemen and documentation delays the entire lending process. It may take days or weeks to get the loan amount.
Whereas crypto lending just like other processing over the blockchain is faster. Funds are made available in the borrower’s account in minutes or seconds. It is indeed one of the major advantages of crypto lending that borrowers do not have to get the funds.
No credit checks
In the traditional finance sector, borrowers must have a good to excellent credit score to get a loan. It means those who do not have a bank history cannot secure loans.
Here crypto lending can help to get a loan. Many crypto lending platforms do not run a credit check when a borrower applies for a loan. He can get a loan if he has a poor or no credit history at all.
In a traditional loan, the borrower has to offer some property or belongings as collateral to get the loan. Whereas in crypto lending, the borrower can use his cryptos as collateral to get a loan in fiat currency.
Crypto lending is the best option for borrowers who only have crypto to offer as collateral and get a loan. Because banks will never accept crypto to give loans.
No geographical limitation
In a traditional loan, only residents of a country can get the loan from a bank. However, crypto lending opens the ground for all without any limitations. Borrowers can get crypto loans from any part of the world (countries supported by the specific exchange platform).
Choice and transparency
The borrower can choose the currency in which he wants to get the loan amount. He can choose to get a loan from a platform that charges an interest rate of his affordability. Moreover, the entire process happens over the blockchain which is highly transparent and immutable. User’s personal information is never exposed. Everything that happens during the entire lending process can be traced back to do inspection anytime.
Advantages of crypto lending for investors/lenders
The following are some of the advantages of crypto lending for investors.
Retain ownership of assets
Crypto holders tend to purchase cryptos to sell them later on. They do earn profits but lose the cryptos. On the other hand, in crypto lending investors lend their cryptos and earn interest while retaining ownership of their assets.
Crypto holders are often told to HODL their assets till the value appreciation. It means their assets are of no use up till then. Crypto lending allows investors to earn some passive income with their idle assets.
Crypto lending platforms backup investors by providing them security for their assets. For crypto lending, the borrower must stake collateral more than the value of the loan. So, in case the borrower fails to pay off the loan, the platform sells the collateral to help recover losses for the investors.
Crypto lending is worth giving a try both for lenders and borrowers. However, other than many benefits it does associate some risks which one must know before stepping into it. All in all, crypto lending is rewarding for users on both ends.