Many borrowing and lending services will provide rewards to those who lend their crypto to their platform. Some of their coins have a reward for lending up to 30% APR.
Many traditional Banks offer 0,5% APR. So Cryptos looks like a delicious alternative for anyone.
You can deposit your tokens to start earning the highest yields in DeFi among lending platforms for single assets. The lending product has no deposit fees, no withdrawal fees, and no default lockup, so you can deposit and withdraw at any time.
Defi lending platforms aim to offer crypto loans in a trustless manner, i.e., without intermediaries and allow users to enlist their crypto coins on the platform for lending purposes. A borrower can directly take a loan through the decentralized platform known as P2P lending. Besides, the lending protocol allows the lender to earn interests. Among all of the decentralized applications (DApps), Defi has the highest lending growth rate and is the most prevalent contributor for locking crypto assets.
The underlying value of crypto assets may increase or decrease, but sitting idle in wallets doesn’t accrue any interest. Just holding a particular cryptocurrency won’t make any earning. It is the situation where Defi loans come into the picture. Defi loans enable users to lend their crypto to someone else and earn interest on the loan. Banks always have been utilizing this service to the fullest. Now, in the world of Defi, anyone can become a lender. A lender can loan their assets to others and will be able to generate interests on that loan. This process can be done through lending pools, the loan offices of traditional banks.
Users can pool their assets and distribute them to borrowers using smart contracts.
While taking a loan from a bank, collateral is required that is associated with that loan. For example, for a car loan, the car itself is collateral. When the user stops paying the loan, the bank will seize the vehicle. The same goes with the decentralized system; only the difference is that the system is anonymous and doesn’t involve any physical property used as collateral. To get a loan, the borrower needs to offer something more valuable than the loan amount. Smart contracts are used to deposit this amount of currency of at least equal value to the loan amount. Collaterals are available in wide varieties; any crypto token can be used to exchange borrowed cryptocurrency. For example, if a user needs to borrow one bitcoin, he’d need to deposit the price of one bitcoin in DAI.
Furthermore, the prices of Bitcoins keep swinging wildly. A case may arise when the cost of collateral drops below the price of the loan. Now, here the question arises, How to deal with this situation? An example could explain it better. Let’s say a user wants to borrow 100 DAI. MakerDAO requires borrowers to collateralize their loans at a minimum of 150% of the loan value. This straight away means that the borrower needs to collateralize the loan with $150 in ETH. And when the value of collateral reduces below $150 ETH, it becomes subject to a liquidation penalty.
- Improved loan origination speed Digitally-enabled lending processes have the most significant advantage of fast processing speed. Defi lending platforms are backed by cloud-based services, analytics for fraud identification and detection and machine learning calculations for optimum loan terms and risk factors. All these technologies eventually help to speed up the process. As soon as the loan is approved, lenders send offers via e-contracts.
- Greater consistency in lending decisions Rules describing credit policies guarantee consistency in lending decisions. Variations in evaluating applicant attributes and structuring deals by underwriters are eliminated.
- Permissionless Defi lending allows open, permissionless access, meaning anyone with a crypto wallet can access Defi applications built on Blockchain, regardless of their geographical location and without any minimum amount of funds required.
- Transparency The public Blockchain broadcasts every transaction on the network and is verified by every user on the network. This transparency level around transactions allows for rich data analysis and ensures verified access to every user on the network.
- Immutability Blockchain’s decentralized architecture ensures tamper-proof data co-ordination and increases security and auditability.
- Programmability Smart contracts are highly programmable, automate execution and enable the development of new digital assets and financial instruments.
- Interoperability The use of an interconnected software stack ensures that Defi protocols and applications integrate and complement one another.
- Self-custody The use of Web3 wallets (like Metamask) ensures that Defi market participants keep strong custody of their assets and control their data.
- Lending and Borrowing The most widely used Defi lending applications involve peer-to-peer lending and borrowing protocols. Aave, Compound and Maker are a few of the most popular Defi platforms.
- Savings Defi lending platforms have come up with numerous innovative ways for people to manage their savings. By plugging into different lending platforms, users can avail themselves of the services of interest-bearing accounts and maximize their earnings. Interest-bearing accounts can help the user to increase their profits when compared to traditional savings account exponentially.
- Asset Management Defi lending protocols and crypto wallets like Gnosis Safe, Metamask and Argent enable users to be custodians of their crypto assets. It allows users to quickly and securely interact with the decentralized apps and avail the services of buying, selling and transferring crypto.