Cryptocurrency is now mainstream around the world, with a wide choice of crypto assets to own. Not many people, however, know that they can earn stable income on their idle cryptocurrency, similar to regular bank deposits. DeFi lending, or decentralized lending, platforms now provide plenty of opportunities that allow you to lend your crypto and supplement your income.
How Does Crypto Lending Work?
Crypto lending platforms connect people seeking to borrow funds with those who have idle cryptocurrency. These are secure environments where you can borrow or lend either fiat money or digital assets.
Similar to a regular secured loan, such as a mortgage, the borrower provides collateral that ensures you against default. Essentially, you lend your idle currency and earn interest throughout the term of the loan enjoying peace of mind. Some platforms also have additional compensation funds in case the liquidation of the collateral is not enough to cover your investment.
People who lend their crypto assets do so because they have cryptocurrency that they don’t plan to use in the near future, since lending the crypto means that you cannot use it anymore for the term of the loan. Also, there are many benefits of crypto lending, especially when compared to traditional loans, that appeal to savvy investors.
In short, a DeFi platform for borrowing and lending cryptocurrency matches the borrowers’ needs with the right lenders. For instance, a borrower submits a loan request stating the amount of crypto they want to borrow, and the platform calculates how much collateral they must submit. Lenders can find and borrowers’ offers with a few clicks, then the funds are transferred to the borrower, while the collateral will be kept in a smart contract.
At the end of the loan, the lender receives the cryptocurrency back and the interest payments for the loan. If the borrower cannot send the principal or the interest payments, the system automatically liquidates their collateral.
Why Should You Lend Your Crypto?
When choosing a safe platform like SmartCredit.io, lenders have unique benefits. First, loans have fixed terms, so you know exactly how long it takes to get your crypto back. There is also a fixed interest rate, which helps calculate the return on the loan accurately.
Most DeFi platforms provide non-custodial lending, which means that the transactions and crypto assets are not exposed to unnecessary risks. Only the lender and the borrower have access to the assets and, in case the borrower defaults on the loan, you receive their collateral.
The yield on crypto lending is much higher than traditional loans. This is because decentralized platforms do not require intermediaries that will take their share out of your returns.
Crypto lending is also a viable passive strategy to earn income. There are DeFi platforms that allow you to automate the entire process of finding and accepting borrowers’ offers, so you don’t need to spend time searching for borrowers.
If you are interested in earning passive income on your cryptocurrency, crypto lending offers fixed interest rates. The loans are secured, so the lender is protected in case of default. The application process is very short, unlike the tedious traditional bank application, and the return is higher than traditional loans facilitated by financial intermediaries.
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