What is Lending Coin? For investors in the crypto market for a long time, this term is not too unfamiliar to them. The lending exploded in October 2017 and has become a trend in the volatile crypto market. In today’s article, we will learn about lending in the crypto market together.
1 – What is Lending Coin?
Lending coin is simply understood as a form of lending money to others to receive interest through a 3rd party (Ex: Binance exchange) in the middle of the management responsibility.
This method is like sending money to the bank to receive interest monthly. The money you deposit will be used by your bank to lend it to someone else. The interest you receive is from the borrower’s loan interest charged to you by the bank.
When lending in the crypto market there are 2 types of exchanges: Cefi and Defi.
Cefi Exchange (Concentrate Finance): These are centralized exchanges, meaning they are managed by a third party that is in the middle to control activities.
Defi exchange (Decentralized Finance): full of decentralized exchanges, which means it operates completely independent of any organization. All activities will depend on the agreement between the two borrowers and the lender or will be agreed upon based on a smart contract.
2 – Lending parameters
In lending there will be some parameters that you need to consider as follows:
Interest Rate: When you make a loan you will receive different interest rates depending on the coin. Stable coins like Bitcoin (BTC) or Ethereum (ETH) have lower interest rates than lesser-known coins, or newer coins.
Loan term: in each exchange there will be different loan terms, 1 week, 2 weeks, 1 month, 2 months, 3 months. During the loan period, your lending coins will be locked by the exchange, you cannot withdraw until maturity. After maturity, you will receive both principal and interest.
Coin loan: each exchange will accept different types of coin, if you have a balance of coins that have a lending mechanism in the exchange’s wallet, you can participate in lending.
Total value locked: this is the total amount of coins of all lenders locked in the platform. This metric shows the level of interest of the user.
3 – Advantages and disadvantages of Lending coin
3.1 – Advantages
There are many lending terms for you to choose from.
This method allows you to make a profit from your idle coins. Like if you have unused idle money, you send money to the bank to make more money.
3.2 – Disadvantages
During the loan period, your coin will be locked (lock), if in the case the coin price on the market is falling, you cannot withdraw to sell to take profit.