When the world first learned about bitcoin and blockchain technology, it became clear that the current financial system would change dramatically. Almost immediately after the first cryptocurrency appeared, many assumed that Bitcoin had the potential to become a great alternative to cash payments. Later on, however, bitcoin began to show itself more and more as an instrument for preserving value, and the traditional financial system no longer seemed so indispensable and monopolistic.

However, the possibility of making money on cryptocurrency due to the difference in exchange rates is not the only thing that worries investors. They are closely watching the further development of blockchain technology and its potential, as well as the opportunities that cryptocurrency offers. One such opportunity is cryptocurrency lending. Getting credit in cryptocurrency is so easy that it is already clear – this very opportunity will attract more and more people to the crypto-world, attracting more and more capital to the market.

Initially, people were able to get loans in bitcoins, but later on, they were able to borrow in other cryptocurrencies, all thanks to the powerful and rapid development of blockchain technology. The cryptocurrency market attracted even more attention to itself at a time when all digital assets rose sharply in value in a short period. Then even skeptics began to look at cryptocurrencies. Who knows, maybe very shortly, cryptocurrency lending market will replace the traditional model of lending in the financial market.

What is cryptocurrency lending?

Cryptocurrency lending provides an opportunity to quickly and very easily get the necessary loan amount secured by cryptocurrency without having to sell it. In addition, cryptocurrency lending allows investors to earn money by lending their cryptocurrency to those who need it. The distinctive feature of cryptocurrency lending is the incredible flexibility, as well as the ability to arrange a loan in a couple of clicks. The borrower can pay back the cryptocurrency loan when he or she has the opportunity, without having to pay penalties. Cryptocurrency lending platforms provide investors and borrowers with accounts to earn interest and credit. Because the loans are backed by cryptocurrency, the entire loan process takes minimal time, without the need for lengthy approvals.

Decentralized and centralized lending

With best cryptocurrency lending, borrowers have the opportunity to keep their cryptocurrency, but to borrow as much money as they need, regardless of the purpose for which they need the money. In this case, if we talk about the methods of obtaining credit, today there are two such methods – decentralized (DeFi) and centralized (CeFi). The main difference between these ways is the functionality, as well as some other nuances. And, of course, each of them has both advantages and disadvantages.

Decentralized lending

A feature of decentralized lending platforms is that they function strictly on algorithms. Their lending protocols are created by the project team or are open source. These platforms do not need to hire staff or incur other costs to function successfully, so they can offer very low rates to borrowers, as well as no loan origination fees and other benefits. However, such platforms have one drawback, because any mistake here is not forgiven. If you accidentally enter the wrong wallet address or press any wrong button, the funds may be credited to another wallet, or you will have other problems.

If you work with such platforms, you will never know about important changes in the cryptocurrency market. Be cautious not to lose all your assets. Of course, this is less of a concern for experienced users, who are careful to provide their details, but newcomers may have problems. If we talk about the advantages of decentralized lending, first of all, we can highlight one hundred percent anonymity, because, to use such platforms, you do not need to be registered at all, even so, you can count on getting a loan.

Centralized lending

Centralized lending platforms have the opposite advantages and disadvantages to decentralized platforms. For example, all transactions within the ecosystem will be controlled by a team, and in case a user makes a mistake in the details and specifies the wrong wallet, a team of specialists can always come to the rescue to correct the mistake. However, because these platforms are staffed by people in customer support, transactions can be too costly for customers. At the same time, to make a transaction on such platforms, every customer will have to register. Each user will have to provide proof of identity as well as some other supporting document, such as an electricity bill or proof of residence address. This way the whole project team will be able to see who is using the service and there is no question of anonymity.

The ability of cryptocurrency to change the industry

If not so long ago the only ways to make money from cryptocurrency were trading and holding cryptocurrency in a wallet, with the advent of cryptocurrency lending users got a new opportunity for a stable income. Let’s take a look right now at how cryptocurrency lending can change the market:

Increased asset flexibility

Flexibility in asset selection is very important to every investor, and cryptocurrency lending and cryptocurrency lending give them that flexibility. For example, if an investor does not want to part with his cryptocurrency because he believes that its value will increase significantly shortly, he can always use this cryptocurrency to deposit on a cryptocurrency lending platform. In this way, he will not only keep his assets but will also be able to earn income from them. If an investor is looking at the immediate future and wants to make as quick a profit as possible, he can always take a cryptocurrency loan to use this money for trading. In this way, the investor himself gets a wide variety of different strategies and gets the opportunity to both earn by simply lending his assets and keeping them with him, or to free up his cryptocurrency by borrowing other assets. All of this allows investors to gain liquidity while keeping their cryptocurrency, which they believe will rise in value shortly. 

Best APY

If you’re planning to earn a very good income, you shouldn’t rush to take your fiat money to the bank. Thanks to the lending protocol, some platforms can offer you a very good rate of return of 12%. You can expect this kind of return by placing assets in liquidity pools. This rate is higher than saving money in a savings account at a bank. As for lending, here the borrower gets its benefits. Thanks to the availability of collateral, the loan is negotiated more quickly at more favorable rates.

Easier entry barrier

Thanks to cryptocurrency lending platforms, borrowers and lenders have a great opportunity to do all transactions without intermediaries, which means no long waits and no overpayments on additional fees. If any user of such platforms needs to apply for a loan and needs the money as quickly as possible, he will get it the same day without having to wait for someone to check his creditworthiness and assess his rating. All of this is unnecessary because the main collateral for such a loan is a pledge. This ensures that new investors are attracted to the cryptocurrency world, especially those who need quick loans without too much trouble.

Conclusion

Cryptocurrency lending provides users with the freedom they need to make financial decisions and manage their assets. If a user is looking for options for placing crypto-assets and earning passive income, these platforms are already ready to offer a very high APY. As for entry barriers, there are virtually no barriers and anyone can become a lender, even with a minimum amount, which no doubt attracts more and more attention to such platforms every day. At the same time, the situation on the cryptocurrency market today is such that most cryptocurrencies are growing in value, and this no doubt also contributes to the flow of capital to the cryptocurrency market, opening new opportunities for investors.

Compared to bank lending, lending on such platforms is much easier and more profitable for borrowers. The process of getting a loan itself does not take a lot of time and does not require a lot of documents and a long wait. Although it all started with cryptocurrency lending in bitcoins, today investors are offered opportunities to earn loans in other cryptocurrencies, which undoubtedly contributes to the further development of the industry.

Provided By Tax Software Company, Sovos