Bitcoin has emerged as a multifaceted cryptocurrency that essentially acts as a store of value but is also used for a myriad of other purposes. One of the popular trends in the Bitcoin industry and cryptocurrency space, in general, is crypto lending. It is a lucrative opportunity for those who would like to earn passive income while securely lending their crypto assets. It is similar to putting your fiat in a traditional saving account and earn interest.

However, there are a lot of things that you need to understand and consider. This article will help you find out what crypto lending is, how it works, and the top 5 crypto lending platforms to watch out for in 2021.

What is cryptocurrency lending?

Many crypto owners HODL their cryptocurrencies for a significant period of time by simply keeping the coins in a cold wallet. In doing so, they are waiting on the value of their cryptocurrencies to appreciate instead of selling them. It is inevitable that in financial difficulty, crypto HODL-ers tend to sell their assets. However, for those who are hesitant about selling their assets, there is a profitable alternative.

They can lend out their assets and in return receive dividends, usually at a more lucrative rate compared to those offered at traditional financial institutions. The lending is usually facilitated by a crypto lending platform that acts as the middleman and custodian of the crypto assets. Let us understand how it works.

How does crypto lending work?

As an investment alternative, individual investors lend out their cryptocurrencies or stablecoins to borrowers in exchange for some interest. There are two actors here: the lender and the borrower. The lender who receives interest from the borrower in exchange for the loan. The borrower who receives the loan and pays interest to the lender.

A simple scenario: John has 1 BTC sitting around in his cold wallet. To grow the productivity of his asset, he lends it out by depositing it in a crypto lending platform. The platform then pays John a 6.2% annualized interest rate in return.

There are many crypto lending platforms in the market offering varying interest rates and conditions. Furthermore, most of them will need you to go through a Know-Your-Customer (KYC) verifications process before you can start depositing and earning interest.

How to pick the right lending platform?

The first thing you need to check in a crypto lending platform is its legitimacy. It is important to perform your own due diligence in regard to the crypto lending platform. Find out about their existing users’ experience, security and risks, and whether there’s dedicated support should a problem arise. You can check their social channels and their community forums to ask questions or discuss things that you’d like to know about the platform.

Furthermore, check if the interest rates are competitive enough for you to lend your assets. Look into the requirements such as minimum deposits or withdrawal options. It’s also important to check if the platform supports the cryptocurrency that you’re intending to lend out or can provide services in your jurisdiction.

Pros and Cons of Crypto Lending

Pros

• Lenders can get an attractive yield usually up to 12% APY on their crypto assets.
• It is an excellent source of passive income without the hassle, and HODL-ers just have to lend their coins and earn interest on it.
• You could avoid crypto volatility by lending stablecoins which have less variation risk compared to cryptocurrency like Bitcoin.

Cons

• There are many unreliable crypto lending platforms with limited support and credibility.
• Users need to go through a Know-Your-Customer (KYC) verification process that can be time consuming.
• Lack of regulatory framework for crypto lending companies, there have been a few cases of scams and insolvencies

Top 5 promising crypto lending platforms to consider in 2021

1. Hodlnaut

Hodlnaut is a secure and reliable crypto lending platform that provides leading APY rates to its customers. Launched in Singapore by two Bitcoin enthusiasts, Juntao Zhu and Simon Lee, Hodlnaut is committed to providing innovative financial products and services.

At the time of writing, Hodlnaut offers 6.2% APY for BTC, 6.7% APY for ETH, and up to 10.5% APY for stablecoins. Hodlnaut currently supports five assets, namely BTC, ETH, DAI, USDC, and USDT. Founded in 2019, Hodlnaut has grown to have 5000+ users and currently has $250M assets under management.

You can safely grow your crypto by lending it through Hodlnaut and earn favorable interest. There are no lock-in periods or any minimum deposits, and customers can withdraw the money anytime. Customers can also opt for Nexus Mutual’s Custody cover to insure their funds.

Hodlnaut prioritizes security and has enabled two-factor authentication as well as an address whitelisting feature for account holders. Signing up for Hodlnaut Interest Account is very easy, and customers simply need to make an account and complete the KYC process. The platform has provided consistent interest rates so far and is an excellent option to consider when planning to lend your crypto.

2. YouHodler

YouHodler provides crypto-backed loans in fiat currencies as well as stablecoins. The platform lists a broad range of popular cryptocurrencies such as BTC, ETH, XRP, and BCH, and more. It offers 4.8% APY on BTC and up to 12.7% APY on stablecoins.

YouHodler has one of the highest LTVs in the market, i.e., 90%. Simply put, if you put up collateral of 20 BTC, you will get a loan worth 18 BTC. The amount of loan you can borrow ranges from as low as $100 to up to $30, 000 and the duration varies from 1 to 6 months.

Moreover, borrowers can get recurring lines of credit if they wish to borrow funds. The platform has a fast and straightforward application process for borrowers, and the approval is quick too. When the loan is approved on YouHodler, you can withdraw the money instantly via your credit card or a crypto withdrawal.

When it comes to security, YouHodler is an approved member of the Blockchain Association, an independent self-regulatory organization (SRO), and provides External Dispute Resolution (EDR). However, the platform witnessed a database leak in July 2019 when millions of records having confidential financial data of the customers were exposed online. No funds were lost.

3. BlockFi

Based out of New York, BlockFi is a startup launched in 2017. The platform has got VC support from Coinbase Ventures and was also supported by famous crypto persona Anthony Pompliano. In terms of investment BlockFi is the crypto lending platform which has recevied most funds from VC funds. The company is currently valued at $5billion in private markets.

BlockFi has turned out to be a reasonable lending option as it offers 5% APY on BTC and up to 9.3% APY for stablecoins. However, it recently reduced its interest rates due to the changing market conditions. Moreover, the interest rates vary according to how much users deposit. The more you deposit the lower your yield becomes.

For borrowers, the interest rate is 4.5% but the minimum loan size is $25,000. The deposited BlockFi assets are stored with Gemini, which is a well-known crypto platform. Gemini is a licensed custodian with insurance with a good track record, and it hasn’t had any hacks or customer fund losses so far. On the flip side, BlockFi provides a limited number of assets like BTC, ETH, USDT, USDC and GUSD. GUSD is Gemini USD, which is a stablecoin created by Gemini.

4. Celsius

Celsius differs from other lending sites as it has its very own utility token called CEL. Users who use this token get exclusive benefits such as increased interest rates, community membership, and priority customer support.

Celsius offers 4.40% APY on BTC and 12.65% APY on stablecoins for lenders. All you need to do is send your Celsius Network wallet to them and get it approved for lending. As for security, Celsius has partnered with BitGo to ensure asset security and storage in the cold wallet. However, Celsius does not provide insurance directly on your deposits, whereas BitGo does. BitGo provides insurance coverage of up to $100M for digital assets.

The approvals with Celsius are swift and do not need any credit check. The interest rates start at 1% for borrowers, and also depend on the loan-to-value ratio. If you use more collateral (crypto), then your interest rate will be lower. The minimum loan amount starts at $500, and users can avail of an LTV of 25% to 50%. You can check the borrowing page of Celsius for more information.

5. Nexo

Founded in 2017, Nexo allows users to borrow funds in 40+ fiat currencies in 200+ jurisdictions. It offers 8% APY on BTC and up to 12% APY for stablecoins if you choose to earn in Nexo tokens. Customers usually have concerns regarding platforms’ legitimacy, so Nexo has partnered with BitGo, which covers the deposited funds. It provides insurance of up to $100M, the same as Celsius Network.

Nexo also offers a credit line that is provided once you deposit the collateral on their site and you can then pay interest for the credit you use. Like other crypto lending websites, Nexo does not need any credit checks and approves the loan very quickly. You can start earning interest on your crypto as there is no minimum investment amount or withdrawal limit. However, you will need to follow a KYC process, after which you can start earning interest on your crypto assets.

Conclusion

The above-listed platforms are worth watching out for in 2021. We hope that this article helps you find the right platform best suited for your specific needs. You may want to pay special attention to the loan’s interest rates, terms and conditions, collateral requirements, and LTV. While choosing the best crypto lending platform, make sure that the platform is secure and legitimate. Happy HODL-ing!

June 2020

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