The modern world amazes people by offering extraordinary conveniences to go with the flow. How? The modern world has its own rules and regulations, which cause changes in human lives. For instance, it has changed the way people interact with currency by exchanging it for cryptocurrency. However, not everyone has enough money to buy cryptocurrency, but now they can lend or borrow cryptocurrency.
This convenience provides individuals with an opportunity to trade, make a profit, and invest in cryptocurrency. Some people also borrow cryptocurrencies so they can spend in crypto casinos to win big. Several platforms are dedicated to lending and borrowing cryptocurrency which I have discussed in this topic. If you are interested in learning more about such platforms and how they work, then why wait? Let’s start!
Cryptocurrency Lending and Borrowing Platforms – Explained
Cryptocurrency lending and borrowing platforms enable individuals to exchange digital assets with a contract to return exact assets over time. Furthermore, some crypto holders feel at ease to exchange their digital assets through DeFi platforms with a person of interest. The interest may have higher limitations and return rates than the person’s overall profit, which is a con.
There are many platforms that provide users with secure crypto lending and borrowing, referring to secure loans. Moreover, some platforms also offer decentralized means of unsecured crypto lending and borrowing in order to deliver convenience.
How do Cryptocurrency Lending and Borrowing Platforms Work?
Formally, cryptocurrency lending and borrowing platforms work in two types of methods: decentralized and centralized. Here are both described.
Decentralized Platforms (DeFi)
The platforms that allow individuals to borrow and lend cryptocurrency without a centralized authority. Instead, these platforms use smart contracts to make the lending process automatic. Contractors have the convenience of lending and borrowing crypto directly with some terms and conditions, and surveillance through code. Aave, MakerDAO, and Compound are some examples of these types of platforms.
Centralized Platforms
How does a traditional bank work? Just like centralized platforms to lend and borrow crypto. How? When a centralized authority decides to manage the borrowing process of lending and borrowing process, including holding collateral, verifying borrowers, and interest payments. Each and every aspects of borrowing and lending cryptocurrency is managed by a centralized authority. Celsius Network and BlockFi are two basic examples of such platforms.
How does the Lending and Borrowing Process Work?
The process of lending and borrowing has different aspects in which the whole process can be concluded. Here are the components described.
Collateral
A collateral is some type of security for lenders to protect themselves against default. In the process of crypto lending and borrowing, borrowers, who need to lend digital assets, have to provide collateral.
Smart Contracts
Smart contracts are only being used in decentralized platforms (DeFi) to ensure that collateral is submitted successfully. Further, it also makes sure that the terms are met with the requirements.
Interest Rates
Before lending the interest rates are necessary to be considered. Whenever lenders make interest on their lent assets are depends on market conditions and platform terms. You can decide whether you want to pay a fixed or variable interest rate.
Cryptocurrency Lending and Borrowing Platforms
Here are some of the best cryptocurrency lending and borrowing platforms.
Coinbase
Firstly, I have decided to add Coinbase to the list of best cryptocurrency lending and borrowing platforms. The reason behind this is that it is a centralized focused cryptocurrency lending platform that ensures an accurate lending process. Moreover, it also allows users to find out their BTC value and exchange it for real money.
Binance
Binance is a global trading platform that handles a large volume of crypto trading in all over the world. Changpeng Zhao, a developer who has made efficient trading platforms, is the founder of Bianance and launched it in 2017. It’s a well known crypto borrowing platform to invest the lent digital assets and make profit. Further, its centralized capability ensures lenders and borrowers that they both have secured digital assets through code.
Bybit
Furthermore, Bybit is one of the best cryptocurrency lending and borrowing platforms that enables lenders to earn hourly interest. However, it is a centralized crypto loan platform, and a centralized authority ensures all the lending requirements, including the collateral. When users get these conveniences, they tend to lend more money and invest in trading. It is also a powerful trading engine that allows individuals to trade more efficiently to make a significant profit.
OKX
OKX is also a centralized crypto exchange platform that enables users to borrow digital assets with a contract. A centralized authority manages all the requirements and ensures that they meet the conditions and terms. The user-friendly interface enables users to navigate easily and go through the loan conditions and terms thoroughly. Here are some of the pros and cons of this platform.
Aave
Last but not least, I have chosen Aave to add to the list of best cryptocurrency lending and borrowing. This platform has only one con: it is for professionals because of its complex nature. However, newbies can also get permissionless loans because of its decentralized nature. Users have to conversate with each others to lend and borrow digital assets on their own terms and conditions.
The Closing Note
Cryptocurrency lending and borrowing platforms enable users to borrow or lend digital assets with a contract to return over time. Borrowers can invest the lent cryptocurrency, make a profit from it, and return it with a fixed or variable interest. There are two types of crypto lending and borrowing platforms: decentralized and centralized. I have compiled this comprehensive guide on how they work, how lending process work, and listed some of the best platforms. Hopefully, this guide will add something in your knowledge.
