Despite popular knowledge, trading cryptocurrencies is not the best and only way to earn a profit by leveraging your current holdings.
Rather, the market offers several other investment tools, such as digital currency lending, which enables borrowers and lenders to transact money between one another in an ecosystem that ensures good interest rates, alongside a sufficient degree of safety.
As the cryptocurrency market continues to develop, traditional financial instruments are now making their way onto this emerging market.
As such, crypto users can now engage in margin lending, crypto-to-crypto lending, and crypto-to-fiat lending, for the purpose of either earning an interest rate on coins that are being lent out, or to get access to fiat/crypto for investments, larger-scale purchases, or day-to-day expenses.
This article will focus on highlighting the main aspects worth taking into consideration when dealing with the crypto lending market, while also featuring an in-depth analysis of the main digital currency lending platforms available on the market.
How Crypto Lending Works
The crypto lending process is straightforward on most platforms offering this service. Lenders will deposit part of their crypto holdings on the platform. The coins are then made available to borrowers at a pre-set interest rate.
Borrowers can then create an account and take on a loan for a specific period of time. Once the lending time has expired, the borrower will return the funds and pay an interest rate on top for the service.
To ensure trustworthiness and help mitigate risks such as borrowers being unable to pay back their loans, most crypto lending platforms implement guarantees or set up collateral or loan backing systems.
Most borrowers utilize such services for two reasons: day-to-day expenses or margin trading. While day-to-day expenses are pretty self-explanatory (a process that is prevalent in the traditional financial market), margin trading entails the use of borrowed funds in order…