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After recently reading about the Coinbase investment in the company Compound, it got me to thinking about other options for crypto lending, loans, and other ways to make interest on your crypto assets.
I have read or heard about lending or borrowing against your crypto for quite some time. I personally have never taken the steps to lend out any cryptocurrency assets or coins. But since so many options now exist, it seems worth writing a short list of options for anyone looking for more information. So below I list options for making interest and money on your crypto tokens or assets. I also mention options where you can borrow against your crypto, so we will cover both lending and borrowing.
None of this is advice, and I have not used any of the following platforms myself, so do your own research.
- Salt Lending
Salt Lending is for loans mostly but also allows people to lend money and invest in the company.
SALT runs on the SALT token (https://coinmarketcap.com/currencies/salt/) which many people hold for investing and speculation, however you also will need SALT to use the lending platform.
SALT is from Eric Vorhees, who is also the founder of the ShapeShift token exchange.
SALT claims that they streamline every step of the loan and have simplified the application process by focusing on the value of the borrower’s blockchain assets, instead of their credit score. Borrowers are automatically matched with capital from an extensive network of lenders. SALT keeps collateral assets safe in a fully-audited, ultra-secure architecture during the life of the loan so members can borrow with confidence.
I just learned about Compound which is funded by a bunch of heavyweights. Some of those being Coinbase, Polychain Capital, and Andreessen Horowitz. It seems to still be in Beta but will allow other developers to build on top of their Compound Protocol, which is designed with developers in mind. Applications can easily monetize or borrow tokens. They have designed the Compound Wallet as a functional interface to the protocol.
TechCrunch reported it will work like this: “Here’s how Compound tells me it’s going to work. It’s an “overnight” market that permits super-short-term lending. While it’s not a bank, it is centralized, so you loan to and borrow from it directly instead of through peers, alleviating you from negotiation. If you loan, you can earn interest. If you borrow, you have to put up 100 percent of the value of your borrow in an asset Compound supports. If prices fluctuate and your borrow becomes worth more than your collateral, some of your collateral is liquidated through a repo agreement so they’re equal.”
Lending your crypto on exchanges was a big thing in 2017. I remember hearing about it often on podcasts and people talking about how much money they were making on the fees and interest. I preferred to make money buying assets instead with my crypto but many people lended to exchanges like Poloniex, Bitfinex, Bittrex, and others. You can also borrow to trade against someone else who is loaning out.
For example here is how Poloniex works for lending, which margin traders use.
“How Do I Offer Loans and Earn Interest?
If you prefer to earn interest on your funds instead of trading with them, you can lend them to other users. Click on the Lending tab at the top of the page, then select the coin you wish to offer in the My Balances box on the right. You will need to transfer funds to your lending account to offer them, which you can do from the “Quick Transfer” link in the offer box.
Once you have placed your offer, it becomes available for margin traders to use. Margin traders will consume lending offers starting with the lowest rate. If a lower rate becomes available after a margin trader’s loan has been opened, the contract may be transferred to the lower rate. Remember, a loan can always be closed early by the taker, so be sure to offer competitive rates if you want the best chance of your offers being taken.
When your loans are being used by margin traders, you are earning interest on them, which is paid to your lending account when a contract closes. (Poloniex takes a fee of 15% from the interest you earn, so be sure to consider that when you place your offers.) Your active contracts are listed under My Active Loans.
Although you cannot cancel an active loan, you can disable Auto-renew, which will ensure that your funds return to you no later than the number of days listed under Duration.”
ETHLend is also built on a token, similar to SALT. LEND (https://coinmarketcap.com/currencies/ethlend/) was an ICO and currently trades on some exchanges.
ETHLend has created a decentralized peer-to-peer lending service based on the Ethereum blockchain. Its decentralized peer-to-peer lending Smart Contract on the Ethereum blockchain lets users lend Ether by using LEND tokens as collateral. Users can borrow Ether by placing digital LEND tokens on Smart Contract for collateral.
- Unchained Capital
This is for taking out a loan against your Bitcoin or Ethereum that you already own. Some reasons people might do this is to have more cash to make trades or to avoid capital gains taxes but have access to the money.
Basically you make a loan and in most instances they approve your loan request in a day. You use your existing wallet to send the token collateral to your new loan’s vault address. Unchained Capital will then will wire your disbursement to the bank account of your choosing and they hold your crypto.
Now you make monthly, interest-only payments. If the value of your Bitcoin or Ethereum collateral drops by 25% they request more collateral or a principal payment. If the value of your collateral drops by 45% they can repossess your collateral and sell it to recover principal and any outstanding interest.
Your final payment will include principal repayment and at that time they return your collateral to an address of your choosing.
A $10,000 loan for 2 years costs $2,500 with $100 in monthly interest payments and one payment of $10,000 due at maturity with an Annual Percentage Rate (APR) of 12.5%.
BlockFi loans money to retail investors and institutions, similar to Unchained Capital.
Based in New York, BlockFi is a secured non-bank lender that offers USD loans to cryptoasset owners who collateralize the loan with their cryptoassets. BlockFi holds clients’ Bitcoin and Ether with a registered custodian and issues loans in USD to their bank accounts. Currently operating in a beta launch, they lend in 35 US states to retail investors and companies.
Also published on Medium.