What it Looks Like to Lend Out Your Crypto

I Can Lend Out My Crypto?

Have you ever wondered what it looks like to lend out your Crypto? Imagine lending out your favorite cryptocurrency and earning a terrific rate of return on it paid back to you in that same cryptocurrency. Well this is all very possible and available right now!

I recently completed a 30 day lending term with Crypto.com and I’m going to show you just what that looked like from my perspective. Everything went super smooth and exactly as planned, but I thought it would be interesting to show you all exactly how it looks inside the app as you lend them your crypto. Then hopefully you can better decide if this is a good decision for you and your crypto assets.

What Are The Risks and Benefits?

Lending out a risky speculative asset, such as cryptocurrencies, is going to carry with it some risks; perhaps some we have not seen before. However, with this risk come some incredible benefits as well.

Risks

Crypto lending is new and has only been around since middle to late 2017. The first to provide this service was London based LendingBlock.
Your assets, while on loan, are held on an exchange and are not accessible. They are locked on the exchange.
They are not being held in your private, secure cold wallet.
Counter Party risk is now at play, and could be an issue if the lender is unable to pay the interest or worse, repay the principle back when the loan matures.
Non-regulated financial industry so your deposit or loan is not backed or secured by any government agency or financial security regulatory; No CDIC, FDIC, or SPIC insurance.

Here are terms you need to agree to when you lend Crypto.com your crypto assets:

Benefits

Obviously the first benefit is that you are able to earn interest and generate a return on your crypto assets in addition to price appreciation of the asset itself.
You read that right – you earn both on price appreciation of the asset plus now the interest rate of return too.
Interest is paid weekly and deposited into your wallet and is accessible right away, you don’t have to wait until term maturity. Only the principle is locked and inaccessible.
Interest is paid in the same currency as the loan. So lend Ethereum and you’re paid in Ethereum. Likewise with Bitcoin. You are not paid in fiat!

Current Lending Rates

Here are the current lending rates as of January 17, 2021 with Crypto.com. Rates are annualized, paid weekly, and not compounded.

How Does it Work?

Before we dig into the details with sample screen shots lets visualize how the money moves and is paid out using a nice visual.

Detailed Step by Step with Screen Shots

1. 2. Skipped

Lets skip over steps 1 and 2. These are your basic move funds from your bank to the exchange and buy Ethereum on the exchange.

3. Lend Ethereum

Next we’re going to lend the Ethereum for 30 days. Once we agree to the terms and indicate exactly how much Ethereum we’re going to lend the exchange, the amount is withdrawn from our Crypto Wallet and locked. This is held in the “Earn” section within their app. While we can look at our loan and see the updated fiat value of the deposit at any given moment, we are not permitted to access the Ethereum and sell it; it’s locked. Below is what it looks like when you peek at the value, but are unable to access the crypto.

You can see the term, the fiat value of the loan, when it matures, and exactly how much was put in on deposit: 1.0061 ETH. The Total Earnings indicates how much has been earned in total term to date.

4. Interest Paid Weekly

Each and every 7 days until the term matures, they will deposit into your Crypto Wallet the interest earned. Because this is deposited into your wallet, you have access to these funds immediately.

Here is the complete accounting for the deposit over the 30 days. You’ll notice the last smaller payment is to finish off the 30 day term after the 28th day.

5. Lent Ethereum Returned on Term Completion

After the term is completed, the Ethereum deposit is returned to my crypto wallet and I have access to this crypto again. The interest is here too, but it was deposited each week as we went along.

This is what that last transaction looks like when they return the deposit

6. Now What?

So my original deposit of 1.0061 ETH was returned and I earned 0.0028903 ETH in interest. So now I have 1.0089903 in my Ethereum wallet that I can either reinvest into another deposit, or I can sell back to fiat and put it bank into my bank account.

Who is Paying The Interest?

This is the question. Crypto.com doesn’t come out directly and tell you how they are raising the crypto they pay you, but from what I’ve gathered during my own research here is some of the ways they are generating the revenue:

Arbitrage

Not all cryptocurrencies are priced the same across all exchanges in the world. This means the buying and selling prices of Bitcoin and Ethereum will always be slightly different between the listed exchanges; this allows for arbitrage. Buy from one exchange and sell on another exchange with a higher price. Apparently significant revenue can be generated through this activity each and every day. If you’ve lent them your crypto they can more easily do this.

Transaction Fees

Every time you buy and sell crypto there are small transaction fees for the miners and validators to process these. Sometimes the fees can get quite high if there is a lot of network traffic and congestion. If the exchange has enough liquidity on hand they could theoretically process the transaction internally without using the exchange during busy times. They could sell you my Ethereum that they have on hand, bypass the blockchain temporarily, and pocket the fees. Then on a later date when the transaction fees are much lower, they could bulk transfer a lot of coins at once and balance back everything back.

Borrowers

Lastly there are people who are borrowing against their crypto holdings to raise fiat funds. This allows them to not pay taxes on their holdings and still access the massive fortunes some of the early adopters have been able to accumulate.

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