Hi folks, sorry for the quiet period the past few weeks. With volatility picking up in both the traditional stock market and especially within the cryptocurrency markets I've been swinging between a couple possible things to write about. Considering the current drop in BTC and the rest of the market is hitting those who have been simply holding or relying on staking earnings I'd like to talk today about some other ways you can earn on your tokens that takes a little more effort but is still within the realm of passive earning.
For those who weren't aware, Kucoin is among the top 10 exchanges (and a partner of this web site) that provides access to a full slate of crypto trading, lending, and staking. It's the lending portion I wish to feature today, as its an area that can provide a boost to your earnings no matter where the market may move.
For this example we're going to take a small amount of ETH and lend it out for margin trading, though there are numerous different coins you can lend out in this way. To lend, the coins need to start in your Main Account, and if they're available for lending will have Lend button active (highlighted in yellow).
On the Lend screen we see a few different options. On the far left is where we can see the various coins that lending is offered for and can switch between them. Next to that is where we can set up our lending offer. In the green highlight we can see just how much of the selected coin is available for lending (remember we're using whatever is stored in the Main Account of your Kucoin account. In blue is the Auto-Lend button, which we'll get to in the moment.
Once you know how much you'd like to commit to a lending offer, we can set the length of the loan (7/14/28 days), as well as the interest rate we wish to charge. You'll note the Optimal rate listed above the entry box. This is the current priority rate for the term length you've selected, basically the lowest Daily Interest Rate currently active for particular term. Longer terms tend to have higher interest rates but this can vary based on market conditions. Also note that while the Funding Market page to the right will update constantly you will need to refresh the screen for the current optimal rate to update.
On the far rate we have the aforementioned Funding Market, which provides us an up to date view of the loans currently on offer. Here we will see the Daily Interest Rate, the corresponding Annualized Rate (useful when the loan returns to other possible investments), the term length that rate is tied to and how much of the chosen coin is currently being offered at that rate. This last total amount can be important when planning your offer. As you can see above highlighted in yellow, the current optimal offer for a 14 day loan has only 0.18 ETH backing it. Considering the amount of trading that goes on that involves ETH, it is very likely this small amount will be burned through quickly. In such a situation we could either price our loan at the 0.03% rate and feel fairly confident our loan will be taken pretty quickly or we could price our loan higher, betting on that 0.18 ETH to be snatched up fast and our higher rate will become the new optimal but at the risk we might be undercut and have to wait longer for our loan to be taken.
Once we've selected our rate, Kucoin will provide an estimate of the profit we'll earn on the loan based on the loan going to term. Now considering we're lending for margin trading it's unlikely we'll be going to the full term so your earnings will likely be less than this, but interest IS calculated every hour so even a very short period of time will earn you some amount of profit. Also, Kucoin takes 5% of the earned interested as fees and 10% for their insurance fund once the loan has been repaid (though if you have KCS staked on the platform you should be earning some of those fees back as profit sharing, but I'll cover that in a future post).
Once you've had a few loans under your belt you'll be able to go in the My Lendings tab and review your lending activity and check the details of each loan you've provided, both those that are active and those that have settled. You note that most of my test loans in USDT have been repaid ahead of time, which is actually fine as I've taken advantage of this rapid turnover with the Auto-Lend feature.
With the Auto-Lend button active our lending screen changes, and its important to note how these new options are different. Instead of a loan amount field we now have a Reserved Amount field. Now, instead of imputing how much of the chosen coin we wish to lend out, we enter how much of the coin in our Main account we DO NOT wish to lend. In this case if I were enter in 0.005 ETH, the system would only create loans with any Ethereum in my Main account that's in excess of that 0.005 ETH and meets the minimum lending amounts of the coin in question. With this, I can keep hold of an amount of ETH I want to have available immediately while allowing the rest to be used to generate income automatically.
Once our reserve is set, we can determine which term lengths we are ok with having loan offers created for as well as our minimum daily rate. This rate is a floor for the terms being made available, as the system will attempt to create loans at the priority rate when funds become available but will not create a loan that is below your minimum set if the priority rate drops that far down. Instead the system will create a loan at the rate you've set once funds become available.
With the auto-lending feature we can create an auto-compounding income stream as interest earned from the loans will start to be lent back out in newer loans, creating larger interest gains. Profits can be taken by resetting the auto-lend with a higher reserved amount, leaving those funds free to be used elsewhere.
When considering whether to make use of this system, you should consider the following:
1) Comfort with the Kucoin Platform: Kucoin is a Centralized Exchange, with all the benefits and problems that comes with it. Like many exchanges they've had to deal with hacking, though Kucoin has performed well in dealing with the issue and trying to make customers whole.
2) How quickly you might need access to your crypto: While a majority of even the short 7 day loans I've run so far don't make it to expiration, I still have to face the fact that the crypto I lend out will be unavailable for certain period of time. If you're focusing on coins that face extremely rapid price changes or see heavy in/outflow among your wallets you should take your time in considering whether you can afford to lock them up for a somewhat undetermined period of time.
3) Rate of return: While the APRs you can achieve with lending are pretty good, there's no guarantee you won't find a better option elsewhere. Keep in mind the fees that will come off your earned interest as loans are paid off; you'll have to recalculate your final gains as you go once the loans settle. While the risk on these loans is pretty low, if you are comfortable with higher risk for higher returns this may not be your best option.
Like always I encourage you to research as much as you can before making a decision on taking advantage of the information above. You can read up on how Kucoin's lending system works with their How To Video and help page.
If you don't yet have a Kucoin account, you can sign up for it with my link. Kucoin has teamed up with Publish0x to allow withdrawls of your earned ETH and AMPL with a minimum withdrawal at a tenth of what's required for on-chain withdrawals! If you're comfortable with using centralized exchanges and have been grinding out your tips for a while you should take a look and see if Kucoin is worth your time.
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