As the cryptocurrency industry continues to grow, it was, out of necessity, important to incorporate other financial services over and above the acquisition and trading of Coins.
Lending which is an all important aspect of finance would be on top of the list. However, since we are talking of virtual currency, there have to be some modifications and a slightly different way of things. That and more is what we are about to find out below.
Why Lend Cryptocurrency?
Trading of Cryptocurrency is the go-to way for investors to make profit. However, it requires time and effort to be a successful trader and for some, easier ways like lending seems like a lucrative option. This is because you can gain interest on your lent currency at a higher rate than that of traditional banks using normal currency for cryptocurrency you have but don’t intend to use immediately.
How does Cryptocurrency lending work?
For it to work, you (read as lender) place the cryptocurrency you have available to loan for margin trading at a given rate on a platform called an exchange. A borrower who acts on the premise that the cryptocurrency will rise in value then requests funds from the exchange. If your loan offers the lowest interest rate, they will take up the loan. When the loan period expires (mostly a period of 2 days though it can be longer), the borrower makes good on the expectation to return your currency with interest on top.
Exchanges that lends cryptocurrencies
Lending generally works in pretty much the same way that fiat currency works. To understand the differences we will sample a few platforms for better understanding.
This company is the leader in this sector and has over the past few years provided great lending services for borrowers and lenders alike. Poloniex supports a number of virtual currencies most notably Bitcoin, Litecoin and Ether but no fiat currency.
There is large market for lenders on this market which is not necessarily a good thing for lenders because returns on individual loans are not that impressive. At the moment the rate for Bitcoin on this platform is pegged at around 0.15% which is pretty decent. One thing to note is that lending offers are often more than actual borrowers.
BitFinex has a feature called Margin Funding that allows users to provide funding, which is in the form of multiple currencies, to BitFinex traders. Borrowers can then decide on their own return rate, the lending duration and amount, as is the case with some other platforms.
One thing to note though is that this platform was hacked in 2016 and it is difficult to gauge the amount of lending activity on BitFinex. Still, because it offers lending in different currencies including the US Dollar, I deemed it worth looking up and understanding.
CoinCheck is a Japanese exchange platform that offers lending services. Lending was introduced and later improved later enabling users to earn a maximum interest rate of about 5% which is quite impressive. It is mostly focused on the lending of Bitcoin though it is possible for a few other currencies as well such as Ether, Dash and Litecoin.
The three are the top lenders in this industry.
Others include SALT, Unchained Capital, EthLend and Othera. The cryptocurrency industry will continue to open up and lending is just one of the endless possibilities.