Lending Cryptos – What Should You Keep In Mind?

Cryptocurrency lending can be lucrative, but it is an investment that you need to do your homework on to protect yourself from scams. It also requires a different mindset from more traditional forms of lending because cryptocurrencies are not actual money as we know it. 

They are digital assets that exist in cyberspace. Despite the novelty and complexity of cryptocurrencies, the principles behind how they function are straightforward to grasp. You can buy crypto with a credit card or convert cryptocurrency (fiat) to US dollars.

There are two primary ways for cryptocurrency investors (or holders) to make returns on their investment: 

  • Through capital appreciation
  • Through interest accruing over time

Capital appreciation occurs when the value of a cryptocurrency increases due to market factors such as investor confidence, adoption rate, and price stability. Interest accrues when someone loans out their coins to other investors with higher risk tolerance who want them in exchange for some interest payment.

The Apt Lending Platform

When we first looked for places to lend our money, the options were clear. However, after comparing a few of them, we found that not all platforms were equal.

It is crucial to ideate what you want before deciding where to lend your cryptos. If you invest in ICOs or want to earn interest on your funds, a platform with higher transaction limits and lower transaction costs will suit you better than one with higher list fees and lower interest rates.

Know the Platform Rules

When it comes to lending cryptocurrencies, loan agreements vary by platform. Each lending platform has its own set of rules and regulations. You should take the time to learn to ensure you are abiding by them. Some platforms allow borrowers to enter into multiple loans at once, while others limit participation in any given loan to one borrower per person.

What happens if I break a rule?

Some platforms have penalties for breaking their rules, but since every lending platform is different, make sure you read the fine print before signing up for your first digital currency loan. In some cases, if you break a lending platform’s rules and get caught, you may not get paid back for your loan or be allowed to use that platform again.

Crypto Forfeiting

Crypto lending is a new phenomenon that is still gaining popularity. However, it is worth taking a moment to familiarize yourself with the risks before getting involved.

Crypto lending comes with some risk like any other form of investment. First and foremost, the value of your crypto can decrease over time. In addition to that, it is important to know what happens should you not be able to pay back the loan at all or should you violate the terms of service in some way. 

Lender’s Risk

Lending cryptos is becoming more and more popular these days. The main objective is to earn profits by lending out the cryptocurrency you have accumulated. You can do this either by lending to a broker that will immediately exchange it for fiat currency or directly lending to an individual.

In both cases, there are loan agreements that detail the basics of your deal.

One of the most important things in a loan agreement is security. If you lend something relating to cryptocurrencies, you must secure your property with collateral worth at least x% of your loan value. 

Cash-flow Risk

As the cryptocurrency market steadily grows, crypto lending has become a popular topic among crypto traders. If you plan to lend cryptos and have some questions about how it all works, you are not alone. Many new lenders find themselves unsure of the risks involved in this process, so we are here to share what we have learned with other prospective lenders.

These platforms continue to gain traction, and more individuals enter this space. Under this scenario, both borrowers and lenders alike will likely find comfort in knowing how their risks get managed. And also how those risks can get minimized without sacrificing profits or security. 

Liquidity Risk

Liquidity risk is a term that gets thrown around quite frequently in the cryptocurrency world. 

Lack of liquidity, referred to as “liquidity risk” or “liquidity nightmare,” is an important factor when starting in the cryptocurrency world as a seller, buyer, or trader. It can be handy if you want other people to trade with at a certain price. However, if you do not want to wait in such a market, you will need to find another way around this problem.

Conclusion

As we have hopefully shown, there is a great deal of potential in the cryptocurrency market. However, you can consider the risks involved and do your homework before entering. The same goes for lending, and not every platform gets created equal, so make sure to read reviews and understand their terms before signing up.  

Picking just one or two platforms can seem like a good idea, but you can quickly end up with a jumbled mess of accounts. Since everything gets stored online, such disorganization creates an easy target for hackers. If it is not important enough for you to keep track of several separate accounts and passwords, then consider spreading your investments around by using more than one platform.