Lending & Borrowing Platforms
Lending & Borrowing Platforms typically aren’t banks, though their lending and borrowing services are very similar to those offered by traditional financial institutions. As non-banks, there may be less regulatory oversight, so be mindful of the risks involved.
Lending platforms let you post your digital assets as collateral so you can obtain loans of cash or stablecoins, generating liquidity without having to sell your digital assets.
These platforms don’t ask borrowers to submit their credit scores. Instead, they require that you post collateral – typically, in an amount higher than the amount you’re seeking to borrow. As a result, approvals are fast – within hours or less in many cases. However, if market volatility reduces the value of your collateral, the platform could automatically liquidate your digital assets while prices are low.
You can also lend your digital assets to many of these platforms. Doing so lets you earn income. This arrangement is akin to having a savings account: you deposit cash and the platform pays you interest on the balance in exchange for using your deposit as loans to other customers. Many platforms pay 5% to 12% in annual interest, typically paid in stablecoins or the same asset (e.g., bitcoin) you deposited. Be sure you understand counterparty risks: when the platform loans your digital assets, who are they loaning it to?