Cryptocurrency lending programs

Borrowers can use cryptocurrency lending platforms to secure cash loans using their crypto holdings as collateral. Crypto lending can be an attractive opportunity for both lenders and borrowers, but recent turmoil in the crypto lending market underscores the tremendous risks involved in the industry. How Does Crypto Lending Work? Cryptocurrency lending platforms are like intermediaries that connect lenders to borrowers. Lenders deposit their crypto into high-interest lending accounts, and borrowers secure loans through the lending platform.

These platforms then fund loans using the crypto that lenders have deposited. The platform sets the interest rates for both lending and borrowing, allowing it to control its net interest margins. Interest rates vary from platform to platform and from cryptocurrency to cryptocurrency. Platforms may also charge fees for their services or offer higher rates for lenders willing to lock up their crypto for a specified time. Centralized crypto lending involves trusting a company or other entity to oversee and facilitate the lending and borrowing process.

Borrowers and lenders register accounts, and borrowers can apply for loans. Lenders and borrowers can connect their crypto wallets to a decentralized crypto lending protocol, which automatically facilitates the lending and borrowing processes using smart contracts. A smart contract is a block of code that runs automatically on blockchain networks when certain conditions are met. Crypto Lending Platforms Current rates on popular crypto lending platforms suggest lenders can get paid much higher annual percentage rates APY than they can expect in most high-interest savings accounts.

For example, Gemini advertises that with Gemini Earn, users can receive up to 8. But not all crypto exchanges offer crypto lending, particularly in the U. US , for example, does not offer crypto lending services compared to its parent company Binance.

The U. Although existing customers can continue receiving interest on their present holdings, they will be unable to add new assets to their accounts, nor will new U. The BlockFi Yield product would purportedly allow customers to accrue interest on their digital currency holdings in a similar manner. Platkin announced on February 14, , that BlockFi had reached a parallel settlement agreement with New Jersey and 31 other states, arising from the same conduct found by the SEC.

Lenders exercise control over the crypto assets until the loan is repaid, generate additional secured loans, and have the option to liquidate the assets if the loan is not repaid within the contract term. The borrowers in these arrangements gain liquidity without being forced to sell off their crypto assets.

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