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Neosify - Buy, Stake & Earn Crypto
Neosify - Buy, Stake & Earn Crypto

Guide to Cryptocurrency DeFi Lending

By Pbjclimbing | Pbjclimbing | 2 Nov 2021

Many crypto users have taken the steps to get their crypto off of an exchange into their own wallet. Many are involved in some of the basics of using DeFi like using a DEX (decentralized exchange like PancakeSwap). Fewer are involved in the world of DeFi lending involving sites like AAVE and Compound. The world of DeFi lending and borrowing is easy to access and not as confusing as it first appears.


How Lending Works

  • You "stake" your coins on the appropriate website.

  • Your staked coins then act as collateral which allows you to borrow a percentage of the amount that you lent, typically 40-60%.

  • You can then re-lend that crypto that you borrow against yourself.

  • You typically get a percentage for lending in the lending currency and the platform often provides an additional "bonus" in their own crypto.

  • When you borrow you pay a percentage in the borrowed currency, but some platforms also give their native crypto for borrowing

  • Lending protocols usually make their money on the spread, the difference between the lend and borrow rate

Risks of Lending

  • What I described above is a form of leverage. It is a less risky form and typically less than 1X leverage, but it is one none the less.

  • If your principal value falls below a certain percentage compared to your loan, it can be liquidated to cover your loan. Staking stablecoins as your principle can make this unlikely

  • A collapse of Tether or a market crash would likely cause chaos that would crash DeFi

  • Most of the hacks that you hear about are lending protocols. Compound is thought of being pretty secure, but forks of Compound like Cream have had hacks lately.


Good Opportunity to Try Lending

  • Harmony ONE's first lending protocol just was released two days ago, Tranquil Finance

  • They are offering very good incentives initially to lend and borrow on their protocol

  • The gas fees on Harmony ONE are so low that you can experiment with $1

  • The risks of using a protocol like this are higher than using a platform like a centralized exchange

  • There are other lending platforms on blockchain ecosystems that have low gas fees, but the returns offered by Tranquil Finance are currently much higher than other reputable lending platforms to incentivize new users

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