The rapid advancement in Crypto World has led to Crypto lending for which people are showing their interest and trust. The inception of blockchain technology makes it the best option for you to store your assets securely.
Since blockchain evolved into the market to empower business, the decentralized finance has made lending and borrowing easy, reliable, transparent, and highly secured. As a result, many financial institutes are looking to dive into the crypto space.
What is Crypto Lending?
Crypto lending is an emerging form of decentralized finance where investors lend their digital assets, either crypto or fiat currencies, to borrowers against interests using crypto exchanges or lending platforms. It is similar to p2p lending as it includes lenders, borrowers, and lending platforms. However, crypto lending platforms require collateral as the cryptocurrency that borrowers pledge as security. Many platforms demand that cryptocurrency assets should be 150% of the borrowed amount to recover the loss and make lending borrowing reliable.
Cryptocurrency lending is the best fit for those investors who do not want to use their crypto assets for a short or long period. They just need to make an agreement through smart contracts and win interest.
Crypto Lending Working Model
Cryptocurrency lending is somehow different from platform to platform, but the working model remains the same. The investors list their digital assets available for loan at a specified interest rate on lending platforms. While the borrower needs to provide collateral in the form of crypto assets to request a loan and he has to pay back borrowed assets within a specified span, including interest.
The implementation of smart contracts makes the cryptocurrency lending and borrowing system reliable, trustworthy, and safe for both borrowers and investors.
The Future of Cryptocurrency Lending
The rise in digitalization, especially in the financial sector, predicts the bright future of crypto lending. According to cryptocurrency experts, the cryptocurrency lending platforms will accelerate 16% each year from now.
One of the major drivers of the selection of cryptocurrency lending is the increase in its demand among traditional financial organizations to check their activity coast through restricted models across all activities among borrowers and lenders.
Crypto lending platforms are mitigating operational, business, and administrative risks. It will additionally speed up the development of the crypto lending industry.
Key to Success in Crypto Lending
If you are new to the crypto world, you need new tricks to become stable and successful. As cryptocurrency lending is a new thing to most people, it demands more research to have a better understanding about it.
You need to explore different platforms and check their ratings before making any investment. Furthermore, you should choose a platform based on its centralized or decentralized nature to enjoy maximum profitability.
Centralized platforms allow lenders and borrowers to agree, but the platform controls processes. On the other hand, decentralized platforms eradicate third parties that increase that increases trust rate.
As an investor, always try to explore the collaterals that a platform demands. Most platforms require collaterals having more value than a loan in the form of cryptocurrencies, especially bitcoins and Ethereum. Some platforms enforce a 60% loan to value ratio for borrowers.
Cryptocurrency lending has a bright future as people, and many financial institutions are showing their trust in it. The integration of smart contracts maximizes the profitability of the lending-borrowing system as borrowers need to pledge their more worthy crypto-assets to have a loan. Cryptocurrency lending can be beneficial for you if you select a platform wisely.