The fact that the traditional system of finance has undergone a major change became known almost immediately after bitcoin and blockchain made their presence known. The technology instantly attracted widespread attention. Initially, supporters of the cryptocurrency were convinced that bitcoin was destined to replace cash payments, but eventually, it became clear that the cryptocurrency demonstrated its best qualities as a means to preserve value. From that moment on, it became apparent that the financial system could change beyond recognition.
With each passing day, more and more cryptocurrency investors began to take an interest in the potential of blockchain technology. One of the advanced tools that attracted their attention was cryptocurrency lending because it allowed not only to take quick and easy loans for the necessary amount against the collateral of cryptocurrency but also to earn by lending cryptocurrency. Because it was cryptocurrency lending that made it possible to attract even more investors to the cryptocurrency market.
At first, the cryptocurrency lending tool was only available with bitcoins, but blockchain technology has not stood still and investors have had the opportunity to leverage other cryptocurrencies for this purpose. They got the financial freedom and opportunities they had always dreamed of.
Investors became even more interested in cryptocurrencies at a time when many assets showed incredible growth in value. The traditional financial system could not offer the opportunities that cryptocurrency lending offered.
What is cryptocurrency lending?
Cryptocurrency lending is an opportunity to make money with cryptocurrency loans and the ability to get loans secured against cryptocurrency quickly and very easily. Cryptocurrency loans have incredible flexibility because borrowers can quickly get the amount of money they need secured by cryptocurrency and pay back their loan when it suits them, without having to pay any penalties. On most cryptocurrency lending platforms, the borrower and investor are given accounts to accrue interest and repay the loan. Because these loans are backed by cryptocurrency, there is no need to undergo a credit assessment and wait for a positive decision on the application.
Decentralized and centralized lending
If you have been looking for a way to get the necessary amount in a loan, but do not want to part with your cryptocurrency, then cryptocurrency lending is almost the best solution for you. There are two variants of such lending – decentralized (DeFi lending) and centralized (CeFi). Each of them has its advantages and disadvantages, and it is very important to know about them before applying for a loan.
A feature of decentralized lending platforms is that they run on algorithms. They involve lending protocols whose code is characterized by absolute openness, or these protocols were created by the project team.
A huge advantage of using such credit platforms is the ability to get a loan at a very favorable rate and the need to pay a minimal fee for the loan. Another positive point of using such platforms is the preservation of anonymity because to get a loan of the desired amount or to perform other operations on such platforms, you will not have to register, which means that your anonymity will be saved.
However, these platforms also have their disadvantages. In particular, in order not to lose your money, you will need to be very attentive to the process of filling in details, because it is enough to make one mistake or press the wrong button to lose your money. If you want to stay up-to-date with the latest changes in the cryptocurrency market, then these platforms will not be the best choice for you. For new users of cryptocurrency, you should use these platforms with caution, because even in a short period, they can lose all their assets.
Centralized cryptocurrency platforms have significant differences from decentralized platforms. On the positive side, there is a support team that can come to the user’s aid if they make a mistake, and in some cases, the funds will be returned to the owner. However, the presence of the support team also hurts borrowers, because loans become significantly more expensive for them, they have to lend at higher rates. In addition, the most important condition for using a centralized lending platform is mandatory registration and verification. You will not be able to remain anonymous because you will be required to provide proof of identity, as well as an electricity bill or proof of residence address.
How cryptocurrency lending affects the entire industry
Even before the advent of cryptocurrency lending, cryptocurrency users didn’t have many ways to make money from digital assets. The most popular way was trading, that is, buying cryptocurrency cheaper and selling it after the rate went up. In addition, some users earned by simply holding cryptocurrency in their wallets. Cryptocurrency lending allowed for the possibility of very good earnings by providing temporarily free cryptocurrency to other users.
Increased asset flexibility
Flexibility is the very quality that many investors lack, but thanks to cryptocurrency lending platforms, they have the opportunity to earn passive income by lending their cryptocurrency to those who need it. Thus, if an investor thinks that the asset will rise in value soon, he will be able to keep it with him, still earning additional income. Another strategy, which is great for short-term investors, is to take a loan in the currency of interest and use it for speculation.
This way, the investor has a wide range of different options for action. He can either keep the cryptocurrency, lending in it and earning passive income, or he can get loans and provide himself with liquidity, keeping the assets themselves.
Cryptocurrency lending platforms offer their users very good rates for placing cryptocurrencies in a liquidity pool. They can get up to 12% APY, all thanks to cryptocurrency lending protocols. If a user needs a loan, the process of granting such a loan will be much easier, he will not have to wait long, because this loan will already be secured by collateral. In addition, this loan will be at a lower rate than any bank.
An easier entry barrier
Cryptocurrency lending platforms allow you to forget about intermediaries and not pay for their services. The borrower and lender communicate directly with each other. If someone needs to get a loan, they don’t have to submit a large number of documents and wait for a credit assessment or credit rating. Everything happens as simply and quickly as possible. The simplicity, convenience, and flexibility of cryptocurrency lending will attract new investors who do not want to wait long for a decision on their loans but want to get the right amount of money in their wallets today.
Cryptocurrency lending provides users with many important benefits, one of which is the ability to flexibly manage their assets. If you don’t intend to part with your cryptocurrency and plan to keep it in your wallet, the high APY makes it worthwhile. The entry barriers here are accessible to everyone and absolutely any user will be able to earn even with small capital. Thanks to the fact that cryptocurrencies have been rising in price at a fast pace lately, even more investors who want to make good money are attracted to this market. Cryptocurrency lending also provides opportunities for borrowers, allowing them to take quick and profitable loans without the need for long waits and various complications. Moreover, if previously it was only possible to get a loan in bitcoins, today borrowers have access to almost all cryptocurrencies.