Crypto lending is one of the emerging trends in the crypto and blockchain industry. Many investors being frustrated with traditional bank saving accounts are shifting to crypto loans considering its vast potential for returns, up to 17%. However, there are also many people concerned about security and risks associated with crypto lending. Generally, it is said that returns on crypto lending depend on your risk tolerance. But there are some ways to maximize your dividends with crypto lending platforms.
Let’s find out how you can maximize your dividends on crypto lending.
What Is Crypto Lending?
There are various cryptocurrencies for having passive income, such as Ethereum, Cardano or Crypto Lending. In lending cryptocurrency, investors use their digital assets to lend out to borrowers in return for interest. It is one of the straightforward ways to earn passive income with your cryptos. Investors can use their cryptos, coins, and stable coins for lending purposes and earn interest depending upon the asset.
While borrowers have to stake their cryptos as collateral, serving as security of loan payment. He cannot use those cryptos until he pays back the entire loan amount. If, in case, he did not repay the loan, an investor can sell his assets to cover the loss.
Maximize Dividends With Crypto Lending Platforms
The following are few tips that can help you maximize your dividends when lending cryptocurrency.
1. Choose Stable Coins for Crypto Lending
In a crypto saving account, you have to choose the cryptocurrency in which you will invest. It can be volatile cryptos such as Bitcoin, Ethereum, or stable coins such as USD Tether. When you invest in volatile crypto assets, the platform cannot provide fiat currency loans to borrowers without volatility risks. On the other hand, if you invest in a stable coin, the platform can use your assets to provide loans without volatility risks. In this way, stable coins provide higher value to the lending platform, and in return, you get higher interest. The return rate for Bitcoin or Ethereum is between 2% to 4%. While for stable coins, it can be up to 10%, depending upon the platform.
The main reason not to prefer cryptocurrency is its volatility because if the prices go down, you will receive a lower interest payment. Of course, if the prices rise, you can earn significantly more. In the case of stable coins, volatility risk is significantly lower, giving an edge over cryptos.
2. Invest In the Native Token of the Platform
Some crypto lending platforms issue their native token called lending tokens, such as Celsius Network (CEL), Cake (DFI), Nexo (NEXO), etc. These platforms want people to buy these tokens so that their value increases, and that is why they offer higher interest rates if you invest in them. The additional interest can increase the returns to more than 10%, depending on the platform.
You can also choose the currency for receiving the interest payment. You can choose between the same cryptocurrency, different crypto, different stable coin, or the platform’s lending token. Also, in this case, if you choose to receive interest payment in the platform’s lending token, the overall interest rate will be higher.
3. Choose a More Extended Lock-Up Period
Different lending platforms offer different investment duration. On some platforms, you can withdraw your assets whenever you want. On some platforms, there is a fixed investment period, for example, 1-month or 3-month. The longer lock-up you choose, the higher will be the interest rates.
For example, on Crypto.com, the interest rate on supported stable coins for a 1-month and 3-month lock-up period is 8% and 12%, respectively.
4. Interest Rate Brackets Can Be Beneficial
Some platforms offer a higher interest rate on a specific investment amount. For example, BlockFi offers a 6% interest rate for the first 2.5 Bitcoin investments. For any sum above 2.5 Bitcoin, you earn only 3%, the base rate of BlockFi. However, it is only applicable to Bitcoin.
In this way, you can take advantage of bracket interest rates to maximize your profit by spreading your funds over different platforms.
You can maximize the interest in crypto lending by following the methods explained in this article. It is recommended to avoid over-promising offers. Every strategy comes with certain risks; therefore, you must know and be prepared for them.