How Does Crypto Lending Work?

In the digital world, crypto lending is a simple process of lending your digital coins – i.e., cryptocurrencies. Known as Decentralized Finance (DF), it allows crypto investors to lend their coins based on interest, however, this concept may not seem as simple to the common folk as it is for the ‘digital people.’ So here is how it works: You lend your coins to borrowers – just like you lend your money – and set a specific interest rate. In turn, you will get the profit based on the interest rate you have set.

Karolina / Pexels / Crypto investors can earn up to 10% through crypto lending based on interest.

Essentially, these crypto investors offer different kinds of interest accounts to borrowers. And based on the interest rates, they earn money in return – in the form of cryptocurrency. Ultimately, this gives birth to the question:

What is the Difference Between Traditional Banking Interest and Crypto Lending?

In essence, traditional banking interest and crypto lending are the same in nature. Banks earn interest on savings and so do crypto lenders. However, what sets the two apart is not only the process but the return as well. In laymen’s terms, traditional banks offer lower interest rates compared to crypto lending. Similarly, the process of the conventional banking interest is different from crypto lending.

Marta / Pexels / Crypto lenders earn more in return as compared to the conventional banking interest.

In crypto lending, the interest rate and percentage of return are measured by the deposited tokens. Additionally, crypto lenders also charge extra fees for the submission of the digital tokens – which are 5% to 10%. Based on the deposited tokens, crypto lenders are likely to earn as much as 20%.

On the other hand, traditional banking procedure does not include any additional fee and high-interest rates. Thus, crypto lenders do not only earn based on the interest. Rather, they charge the additional amount for depositing the tokens with the surcharge of the loan itself.

Is Crypto Lending Safe?

Over the last few years, the crypto market has been touching its peak. With digital currencies soaring every day, there are also new innovations in the crypto market and perhaps the most popular among them is crypto lending.

World Spectrum / Pexels / Crypto lenders work in sync with custody providers to ensure the safety of crypto lending.

Unlike traditional banking and lending, crypto lending comes with insecurities. Nonetheless, it is considered to be fairly safe in the crypto market. Potential crypto investors and lenders cooperate with giant custody providers to make sure that the process does not involve any deterioration. On top of that, every single step is thoroughly monitored on the blockchain platform. Similarly, Decentralized Finance is also active in the security of crypto lending.

With that said, crypto lending is high-paying and widely popular not only in theUS but throughout the world. However, this does not mean it is risk-free. But there are certain steps and advancements that the crypto market takes to ensure the safety of the process.