Lending cryptocurrency involves more than simply storing your funds; it is about actively utilizing them. By placing your assets on a lending platform, you facilitate access to liquidity for borrowers while earning an annual percentage yield (APY) or annual percentage rate (APR) in return.

However, is crypto lending truly lucrative? What kind of yield can you realistically anticipate? This article will analyze the figures and examine how this practice can transform dormant assets into a viable source of passive income.

What is Crypto Lending?

Crypto lending is the act of depositing digital assets onto a lending platform, which then loans these assets to borrowers alongside funds from other lenders. In exchange, you receive interest for supplying essential capital to those in need.

Lending your assets is most beneficial when you possess idle coins and intend to hold them for extended periods. This approach not only generates passive income but also allows you to further enhance your returns by reinvesting the interest earned.

You can engage in crypto lending through centralized platforms that manage your funds or through decentralized finance (DeFi) protocols that utilize smart contracts to provide a trustless and non-custodial lending experience. While the latter option mitigates counterparty risks, a digital asset lending solution from a reputable provider like Fulcrum can improve your experience by offering more flexible terms and full insurance.

How Does Crypto Lending Work?

The standard lending procedure on a lending platform typically unfolds as follows:

1. Deposit Cryptocurrency: To initiate the process of crypto lending, you must first deposit your funds into a lending platform or protocol, such as Fulcrum.

2. Lend Your Assets to Borrowers: The platform allocates your funds, along with those from other lenders, to borrowers seeking to fulfill their borrowing needs. To secure this additional capital, borrowers are required to provide collateral, which remains locked until the loan is fully repaid. Most lending solutions operate on an overcollateralization basis to safeguard your funds against potential defaults by borrowers. This mechanism ensures that borrowers cannot access more funds than the total value of their collateral (for instance, with a 70% loan-to-value ratio, a borrower can only obtain $70 for every $100 of collateral).

3. Earn Interest Payments: After depositing your funds into the lending platform, you begin to accrue interest on the cryptocurrencies you have provided. The annual percentage yield (APY) on your lending is influenced by various factors, including the current supply and demand for the deposited digital asset, lock-up periods, liquidity, and any loyalty programs in place.

4. Borrowers Repay Their Loans: Borrowers are obligated to repay their loans at the conclusion of predetermined terms, which include both the principal amount and interest. Loans with flexible terms can be repaid at any time, or until the value of the borrower's collateral drops below the agreed-upon loan-to-value (LTV) ratio. If this situation arises, the platform will liquidate all or part of the borrower’s collateral to reimburse the lenders.

5. Withdraw Your Funds: Deposits made into lending platforms that do not have lock-up periods can be withdrawn at any time without limitations. Conversely, assets tied to fixed-term loans will only be released once the specified lock-up period has elapsed.

Is It Possible to Earn Money by Lending Crypto?

You can indeed earn money by lending your cryptocurrency to borrowers. Lending platforms allocate profits to lenders based on the interest paid by borrowers. Typically, the interest rates for borrowing exceed the annual percentage yields (APYs) for lending, which helps maintain the long-term viability and financial health of the service.

Not All Digital Assets Qualify

Depending on the crypto lending platform you choose, you may be required to convert your currency into an eligible asset. This may not be ideal if you prefer to retain your specific asset, especially if it does not meet the collateral requirements of the platform.

This method of earning is regarded as a form of passive income, as it demands little effort from you once your assets are deposited on the lending platform. Overall, lending cryptocurrency presents an excellent opportunity for long-term holders to utilize their coins and earn additional interest.

How Much Can You Earn Lending Crypto?

The yield you can earn from crypto lending can be calculated by considering the following three variables:

Interest Rates: This is the APY or APR the lending platform offers you for depositing assets. It represents the interest you can earn per annum. Crypto lending rates typically range from 3% to 15% APY but can be higher for certain assets or services.

Lending Amount: This is the amount of crypto you deposit to a lending platform. The more digital assets you lend to borrowers, the higher your potential earnings will become.

Duration: Interest accumulates over time, so longer lending periods yield more returns. For instance, you will earn more revenue as a lender by lending the same cryptocurrency on the same platform for a year than only a month.

For example, if you lend 1,000 USDT at the current 15% APR on Fulcrum, you could earn 150 USDC over a year.

Start Lending Crypto With Fulcrum Today

Crypto lending presents a great opportunity to generate passive income on your idle digital assets. By understanding how it works and the potential yields, you can make informed decisions to maximise your earnings.

Ready to take advantage of crypto lending? Register an account at Fulcrum to securely lend your Bitcoin (BTC), Ethereum (ETH), USDC, USDT and other crypto assets and start earning interest.

Best Interest Rates: Enjoy best yields on the market for a variety of cryptocurrencies.

Full Insurance: Benefit from robust security measures to protect your assets and full insurance.

Regulated: We are regulated by Swiss financial authority FINMA.

Don't miss out on the opportunity to grow your crypto holdings. Join Fulcrum now and start earning today!