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Before talking about top crypto lending platforms, let’s just take a step back and look at the crypto market. Since the pandemic, the crypto market has drastically risen month after month. This brought in millions of investors and billions of dollars in the crypto market cap.
Especially during this crypto hype, investors seek options on how to hedge their position and benefit from their crypto assets without liquidating the portfolio. In this article, we will see the top crypto lending platforms. Also, we will look at the crypto lending business model by highlighting the top crypto lending platforms. But first, let’s learn what crypto lending is and how it works.
What is Crypto Lending?
One of the most popular in finance and blockchain, crypto lending is a sort of Decentralized Finance (DeFi) where investors lend crypto to borrowers in exchange for interest returns (crypto dividends). Crypto lending platforms regularly accept cryptos and stablecoins.
Crypto lending has gained fame over the past few months. This is due to an increasing number of investors who want to earn money on their crypto assets. And also, interest by investing in crypto-backed loans on crypto lending platforms.
How Does Crypto Lending work?
Let make it clear with a simple example: Let’s say you have 5 bitcoins and you would like to make a steady passive income with your bitcoins. So, you deposit these 5 BTC on the wallet of crypto lending platforms. More so, you will receive weekly (or monthly) interest from it.
For bitcoin lending, these profit rates normally are from 3% to 7%, while they can be a lot higher (up to 17%), for example, on more stable assets such as stablecoins (e.g. USD Coin, USDT, True USD, Binance USD).
Who are The Players in Crypto Lending?
Lenders and borrowers in crypto lending are united through a third party. It can be an online crypto lending platform, which acts as a trusted mediator.
Moreover, for lending to take place, there should be 3 parties included: lenders, borrowers, and lending platforms:
- The lenders: This could be anyone holding cryptos waiting for the value to soar (HODLers). Or just crypto enthusiasts, looking to increase their assets’ output.
- The crypto lending platform: it takes care of the transaction, including lending and borrowing. When it comes to crypto lending platforms, we have decentralized platforms, autonomous platforms. And centralized platforms with a group of people or firms operating behind the curtains.
- The borrowers: People looking to get funds for whatever ends. This could be a person or a company looking for fundings. And should use crypto or fiat assets as security to get funding.
Top Crypto Lending Platforms
There are many crypto lending platforms, but our focus in this article is Venus, Aave, and Compound.
Venus lets users use their cryptos by providing deposits to the network that users can borrow by likely over-collateralized cryptos. This creates a strong lending environment where the lender gets a combined interest rate yearly (APY) paid per block while the borrower pays interest on the crypto borrowed. More so, the protocol in a curve yield is the system that sets the rates. Further, the rates are automated based on the order of the specific market, such as Bitcoin.
Furthermore, Venus uses the Binance Smart chain for fast, low-cost transactions. It also uses BSC for accessing a broad network of protected tokens and liquidity.
The Venus Protocol is a Binance Smart Chain smart contract for providing or borrowing assets. Through the vToken contracts, holders of BSC tokens (BNB or BEP-20 tokens) can receive vTokens or borrow assets from the protocol.
The protocol will also allow the minting of VAI, the first synthetic stablecoin on Venus that intends to be pegged to 1 USD. VAI is minted by the same collateral that is provided to the protocol. The Venus vToken contracts trace these balances and algorithmically set profit rates for borrowers.
Aave is a DeFi protocol. It lets people lend and borrow crypto without having to go through a centralized mediator. When they lend, they gain interest; when they borrow, they pay a dividend.
The protocol is built on the Ethereum network. But, the Aave itself uses a decentralized autonomous organization or DAO. This means it’s run and ruled by the people who hold — and vote with AAVE tokens.
Aave is an open-source and non-custodial protocol on the Ethereum ecosystem for decentralized lending and borrowing. For lenders, the protocol mints ERC20-compliant aTokens at a 1:1 ratio to provided assets. Interest now starts increasing continuously. More so, it describes an even rise in the number of aTokens that the lender holds. This interest stream may be redirected to any address, separate from the aTokens that outline the underlying system.
Aave offers flash loans. It offers trustless, uncollateralized loans where borrowing and repayment must happen in the same transaction.
How Lending Works on Aave
As crypto is so volatile, DeFi platforms demand over-collateralization. So, for a $500 crypto loan on Aave, you have to put more than that amount in another crypto. If the price drops and the amount in collateral no longer cover the price you’ve borrowed, your collateral can be sold. This means the protocol uses it to cover the cost of your loan.
Compound is also a DeFi protocol for interest rate markets. When users provide ETH to gain interest, they exchange it for cETH, which they can swap back for ETH at any time. This is the case for each token that Compound supports. More so, Compound does not involve fiat, derivatives, etc. Users can just provide assets and borrow assets. This produces interest payments from borrowers to suppliers.
Compound is a decentralized, blockchain-based protocol that lets you lend and borrow crypto — and have a say in its governance with its native COMP token. Moreover, the protocol is free to use and fully accessible.
Compound supports the borrowing and lending of specific cryptos. To name a few, Dai (DAI), Ether (ETH), USD Coin (USDC), Ox (ZRX), Tether (USDT), and many more. So, anyone with crypto can lend and borrow crypto quickly. They can do so without having to spend the time, effort, and cost of dealing with a traditional financial mediator.
How Lending Works on Compound
If you own cryptos that the platform supports, you can send, lock, deposit, and lend. Locking your crypto is just like putting your money in a savings account. But with a decentralized, blockchain-based protocol. More so, instead of putting your money into the bank, you are sending your crypto to the Compound wallet. And, just like lending to a bank, you instantly begin to earn a profit on your crypto.
The interest you earn is designated in the same token that you lent. For example, if you send BAT you gain interest in BAT. Also, if you send DAI you gain DAI, etc. The crypto you send goes into a large pool of that same token in a smart contract. It is sent in the Compound protocol that thousands of other people all over the world sent as well.
COMP is the governance token of the Compound protocol. And also, a predetermined amount goes to all lenders and borrowers on the Compound protocol every day. COMP distributions occur every time an Ethereum block is mined (every 15 seconds). This is done in an amount equal to the interest accrued by each asset.
Here are the top crypto lending platforms. People who want to make more profits can use their crypto assets to generate some dividends (ranging from 4% to 17% yearly ROI) by lending their cryptos.
Disclaimer: This material must not be used as the basis for making any investment decisions. This serves only as informative material about the crypto exchange. Trading digital assets involve risk and can result in the loss of investment capital. Always make sure to do in-depth research prior to engaging or investing in any cryptocurrencies.