What is crypto lending?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Crypto lending means lending out assets you hold in exchange for interest. It comes in two forms — intermediated by an exchange, or handled entirely by a DeFi contract — and each carries a different risk. While lent, the assets are generally not yours to sell.
Key points
- Lend assets you hold and receive interest
- Exchange-intermediated and DeFi routes carry different risks
- Lent assets cannot be sold, whatever the price does
- On the borrowing side, falling collateral triggers liquidation
Definition
Lending crypto assets for a period in return for interest; borrowers typically post other crypto assets as collateral.
With an exchange lending product, you lend your holdings to the operator and receive interest for the term. Signing up is easy, but your counterparty is that company, and nothing guarantees recovery if it fails. Deposit insurance does not apply.
In DeFi lending you supply a protocol such as Aave, and borrowers' interest is distributed to suppliers. Borrowers must post collateral worth more than they borrow, and positions are liquidated automatically when the collateral ratio breaches the threshold — which is how bad debt is kept rare.
Either way, lent assets generally cannot be sold. Fixed-term products leave you unable to act through a sharp fall. Look at the lock-up and the early-exit terms, not just the rate.
Watch out for
- · You cannot sell what you have lent, however far the price falls
- · If the operator fails, the lent assets may not come back
- · As a borrower, a collateral shortfall triggers forced liquidation