When the world first learned about bitcoin, the traditional financial system could no longer remain the same. Blockchain technology exploded with new possibilities and almost immediately threatened to break all the established rules that the financial system dictated, and of course, blockchain and bitcoin itself attracted active attention from investors looking for new ways to make money. Bitcoins have proven to be a great means of preserving value, even though they were originally intended to replace cash. Their popularity went so far that many began to say that it was a cryptocurrency that could replace the traditional financial system, or at least seriously change it.
To date, a huge number of interesting services related to cryptocurrencies have been invented, but one of the main ones is cryptocurrency lending. Here investors get very good opportunities for fast earnings with minimal risks. However, the main advantage of cryptocurrency lending is to attract even more investors to cryptocurrencies, which contributes to the growth of their popularity.
The rapid emergence of new blockchains has allowed cryptocurrency investors to leverage cryptocurrency lending to make money not only in bitcoin but also in other assets, giving them the financial freedom they dreamed of. Thanks to the exponential growth in the value of major cryptocurrencies, even skeptics began to think about investing in these assets. The traditional lending system received a very serious competitor in the form of cryptocurrency lending and was noticeably inferior to the latter in several factors.
What is cryptocurrency lending?
Cryptocurrency lending provides an opportunity to get money quickly and very easily in the necessary amount against the collateral of cryptocurrency, as well as to earn money by providing your cryptocurrency to those who need it. There are no credit scores and no high interest, no penalties. Borrowers receive loans secured by cryptocurrency, repaying them within an agreed-upon time frame. Cryptocurrency investors get the opportunity to earn by lending in cryptocurrency that they are temporarily not using. Both investors and borrowers are given accounts on cryptocurrency platforms. Loans are disbursed instantly because they are already secured by cryptocurrency, which means that investors’ risks will be minimal.
Decentralized and centralized lending
Cryptocurrency lending is a great way to get the amount of money you need for the short or long term, but without parting with your cryptocurrency or selling it at an unfavorable rate. However, before getting a loan for any purpose secured by cryptocurrency, it is important to understand the features as well as the pros and cons of the two lending options available – decentralized (DeFi) and centralized (CeFi).
Algorithms are at the core of the functioning of decentralized lending platforms. These platforms use lending protocols developed by the project team or such protocols whose code is open-source. Because no human labor is used in the lending process, it is possible to get a loan at a very loyal rate. If you need money but are worried about your anonymity, in the case of centralized platforms you will not need to register to get a loan, so you’re incognito will be preserved.
But don’t assume that such platforms are devoid of disadvantages. One of the biggest disadvantages is the irreversibility of all transactions, and if you provide the wrong details to get the money, you can simply lose it. Also, such platforms never inform their users about changes in the cryptocurrency market situation, for this reason, novice users can very easily lose their money if they are not attentive enough.
Unlike decentralized lending platforms, centralized platforms involve a team. On the one hand, having to pay for their labor results in higher interest rates for borrowers, but if for some reason you make a mistake, the team can come to the rescue and try to recover your money. Is registration mandatory? In the case of centralized loan platforms, it is. Be prepared to be required to provide identification, a document that proves your residential address, or your electric bill. Thus, if you want to remain anonymous, it is better to give preference to decentralized credit platforms.
How will cryptocurrency lending affect the industry?
The impact of such phenomenon as cryptocurrency lending is very significant because it provides an opportunity for stable earnings for cryptocurrency users, who not so long ago could earn only in several ways, for example, by keeping cryptocurrency in their wallet or by trading.
Increased asset flexibility
The ability to borrow in cryptocurrency and lend to other users while earning a steady passive income provides investors with the flexibility they need when choosing assets. Let’s say an investor wants to earn through cryptocurrency speculation, in which case he can use a cryptocurrency loan. If, however, he believes that the value of cryptocurrency will increase shortly, then he can go the other way and keep these assets with him by lending in them on a cryptocurrency lending platform. That way, he no longer needs to keep the cryptocurrencies in his wallet to keep them. If there is an opportunity for passive income, then why not take advantage of it, as well as take advantage of the opportunity to make a loan in cryptocurrency in case you want to trade it and make money from it.
By placing your funds in a liquidity pool, you can make good money. This opportunity is given by a cryptocurrency platform. When compared to the low rates of banks and the interest you get for keeping funds in savings accounts, in the case of cryptocurrency platforms you can get up to 12% APY. In addition to being able to make money with a pool of liquidity, you have the opportunity to borrow at a favorable interest rate, without having to wait and approve applications for a long time
Easier entry barrier
P2p lending platforms allow the borrower and lender to get rid of intermediaries and not have to pay for their services while saving their time. Since a loan involves collateral, it can be granted without lengthy procedures such as a credit assessment or credit rating check. This feature of the loan process makes it possible to attract investors who have an urgent need for a certain amount of money and do not want to waste their time.
With the advent of cryptocurrency lending, investors have had ample opportunities to hold their cryptocurrencies and get high APY, and most importantly, they have a chance to flexibly manage funds in their cryptocurrency portfolio. The incredible growth in the value of cryptocurrencies attracted even more investors to this market, who were able to realize their earning potential thanks to the low entry barrier.
As far as cryptocurrency loans are concerned, the platforms allow borrowing any amount quickly against an existing cryptocurrency without having to go through various bureaucratic procedures and waiting for a long time to approve the application. Such platforms allow investors to make good money and borrowers to get the right amount quickly for any need.