Welcome to the second release of my “A Comprehensive Guide To” series where I cover a new topic in-depth while trying to keep things simple.
What is Crypto Lending and why should you consider it
Put simply, when you lend out your crypto you are giving a loan out to a person, business or other entity that takes that loan for a reason and then repays it back to you with interest, similar to traditional bank loans. Over the past few years since the 2017 boom many services have popped up to help you lend out your cryptocurrencies at various rates. Depending on the service and how its model functions earning interest on your crypto is one of the safest options to make a decent amount of passive income without doing work yourself. You’re basically making money while you sleep! However, the space is filled with scams and some services that are less transparent or trustworthy compared to others. In this guide I’ll help you compare between all the popular lending services so you can pick which one suits you best.
Centralised VS Decentralised
Just like exchanges, lending services can be either centralised and owned by a company or decentralised by being based directly on the blockchain (typically Ethereum). Each has advantages and disadvantages, generally centralised services require custody of your funds and will require some trust to use, however, depending on the service your funds are less likely to be stolen and you can get a higher rate of income when compared to decentralised options. You’re free to pick which one you prefer, whether you are willing to trust a centralised service or use a decentralised one.
There are many services out there that provide cryptocurrency lending and as such I will only focus on the most reputable and well-known few here.
BlockFi is a centralised crypto lending platform started in 2017. It caters mostly to institutional and business investors, providing big loans to them. It also has smaller loans for regular users however that is not their main market. Because they mostly work with large businesses, BlockFi can offer some of the highest returns in the space (highlighted in the image below) which is good for anyone looking to maximise returns. The service requires user KYC before you can use it which can be a downside to some people. BlockFi uses Gemini as their custody wallet and their main backing/exchange, they are also a registered NY company which adds to their reputation. They suffered a data breach earlier in 2020 where user data was leaked (however no assets were stolen) and has hired a new Chief of Security to revamp their security system. The service also offers an internal exchange on their website as well as 1 free crypto and 1 free stablecoin withdrawal per month.
Additionally, you can use my referral link at the end of the article to gain $10 worth of crypto if you make an account and deposit $100 or more worth of crypto and hold it for 1 month.
Nexo is a very popular crypto lending platform that launched in 2018. They offer a large number of assets with fairly high interest rates. However, it is important to note that the platform has a native token to it called Nexo token. In order to maximise your earning rates, you must hold at least 10% of your portfolio in Nexo tokens, which might not be something investors are willing to do. They offer 4% on cryptocurrencies and 8% on stablecoins (increased to 5% and 10% respectively using the Nexo bonus). Nexo also requires KYC in order to use their platform and has no withdrawal fees on their platform.
Celsius is also a well-known crypto lending service that launched in 2017. They offer fairly high rates of return. However, it is important to note that just like Nexo they have their own token named Celsius token. In order to maximise your interest return you must deposit your cryptocurrency and get paid in the CEL token instead of your cryptocurrency, which can be a hassle or turn off for some. Celsius also requires KYC similar to most centralised services. (note in the image below the green rates mean you need to earn in CEL to get that rate.)
Crypto.com was established in 2016 and remains a leading lending provider till now. They also have a token you must hold in order to maximise your returns. They are different from other services as they offer lower fees on flexible interest accounts where you can withdraw anytime. However, they offer higher returns on lock-in accounts where you have to lock your crypto on the platform for 1-3 months, each additional month increasing your returns. This is only suitable if you are certain you won’t need access to your money for that amount of time. They offer a large selection of both cryptocurrencies and stablecoins and also require KYC.
There are many exchanges that offer crypto lending and borrowing services too, however there are too many to mention here in the article (if you want an article entirely on exchange-based lending comment down below). A short list of the more popular options includes Poloniex, Binance, Bitfinex, BitGo and Liquid. These aren’t as automated as pure lending services; however, they can be automated using a service called cryptolend. I suggest you do some research on these exchanges as you might already have an account with them and want to use their lending service for increased convenience.
Compound is a decentralised lending service launched in 2019 that operates on Ethereum. Because it is decentralised it doesn’t require custody of your funds or KYC, which makes it attractive to anyone looking to avoid those things. However, it also has much lower rates than all services on this list, so you need to measure your risk tolerance and pick the option that works best for you. The smart contract has been successfully audited by Trail of Bits and OpenZeppelin and no major vulnerabilities were found which makes Compound fairly safe to use. It is also open source, so anyone is able to look at it’s code and how the smart contract runs directly on Ethereum if they want to prove the security themselves. Because it is built on Ethereum, there will be transaction fees paid in ETH to interact with the smart contract which is good to keep in mind.
Uniswap and Balancer aren’t traditional lending services, however they also offer returns on their cryptocurrency pools where you can provide liquidity to the market and earn fees based off of that. You can refer to my in-depth guide on Uniswap for more details on how this works and how to use it. (https://www.publish0x.com/cryptochat/a-comprehensive-guide-to-uniswap-xolrjve)
Which service to use?
I have only outlined the most popular crypto lending services that have some history and reputation to them, there are many more out there that you can look for. You need to weigh your priorities, whether you are willing to do KYC or willing to trust a centralised service or go with a decentralised one for lower rates. Once you decide you can do your own research into these platforms and pick whichever one suits your needs best. Below is a quick comparison between them to make it easier for you to quickly compare between the services listed in this article.
Thanks for reading my second Comprehensive Guide, this is not investment advice and is only meant to guide and help you.
You can use my BlockFi referral link to earn $10 if you hold $100 or more on the platform for one month: https://blockfi.com/?ref=bcf0e2f1
I’d appreciate any small tips to help me out: