4.1.0. Crypto Lending
One of the innovations in the Crypto Market, that started in 2018, whereby you can keep your cryptos and earn interests is Crypto Lending. It involves lending your cryptocurrencies to borrowers in exchange for interest payments (crypto dividends).
Therefore, crypto lending involves three parties:
(1). Lender: You are a lender when you give out your cryptocurrency for the lending service. All you do to become a lender is to look for a lending platform and deposit your cryptocurrency.
(2). Borrower: This is the investor who will borrow your deposited cryptocurrency for his personal purpose. For an individual to successfully borrow a cryptocurrency, he will need collateral.
(3). Lending Platform: This is a digital platform where the lender deposits his crypto while the borrower deposits collateral. Thus, the main function of a Lending Platform is to provide security for digital transactions so that the lender and the borrower do not cheat each other.
Lending Platforms are digital platforms where you can keep your cryptos and earn interests. Lending Platforms can be looked upon as Crypto Banks because they can do what traditional banks do and much more.
4.1.1. Crypto Lending Mechanism
While cryptocurrency lending is different from platform to platform, the general concept is the same for all platforms. A lender deposits his crypto on a lending platform, offering the crypto out for lending at a particular rate.
A borrower will decide if he likes the conditions of the loan, and if he does, he will provide collateral, which will be kept in custody on the Lending Platform.
There are mechanisms set in place to govern the lending process, and such set-up mechanisms include:
• duration of the lending
• specified interest rate for the lending
• the amount of collateral that is acceptable for the lending
• penalty that must be executed in the case of default of lending
4.1.2. Two Kinds of Crypto Lending
There are two kinds of crypto lending:
(i). Centralised Finance (CeFi) Lending
(ii). Decentralised Finance (DeFi) Lending
The main difference between CeFi and DeFi lending is in the operation of the lending mechanisms. In CeFi lending, the lending mechanisms are controlled by the centralised platform that set up the lending process. On the other hand, DeFi lending is controlled by the supplied liquidity provision and not by the platform. That is a huge difference between the two kinds of lending.
This difference makes sense not just in the knowledge but also in the amount of interest being paid. Some DeFi lendings yield crazy amounts of passive income due to their huge interest rates. These insane yields will dramatically turn your finances around, if you know how to invest in them. Be sure to enroll in the Tertiary School of Cryptocurrencies (https://school.edaface.com/course/tertiary-SOC) of EdaFace Academy where DeFi lending is discussed.