Get 10%+ on Your Crypto! But is it worth the risk?
In November 2020, Cred, a crypto lending company filed for bankruptcy. They had been offering customers 4–10% APY on their crypto deposits, then suddenly, it was gone.
Cred suffered from a series of missteps that led to losses of $80–90 million of depositor’s funds. They had lent to a fraudulent fund, Quantcoin, and engaged in a series of risky loans in China by providing funds for derivatives traders, further they had lost customer money through a hack at a third party wallet provider.
Despite all of this bad press, the crypto lending industry continues to grow.
Get Cash without Selling Crypto
In a world of record low interest rates and negative yielding junk bonds, crypto lending platforms have arisen to provide investors with steady, high yields on cash and crypto assets. These yields are incredibly enticing, particularly with rising inflation and interest rates on savings accounts that can’t keep up.
By placing your funds in these interest bearing accounts, you are lending money to the platform. They turn around and lend your money out to others at a higher interest rate, then pay you the difference. Moreover, you can borrow against your crypto assets and get paid out in USD to make large purchases, all without selling your assets.
Keep in mind, if you are being paid interest on any asset: you are the lender.
You’re making a loan to the crypto lending platform with its own terms and conditions associated with it. Be sure to read the fine print to understand what you can and cannot do once you move your assets to one of these platforms. As a lender, you need to start thinking about the credit risk of your borrower — the crypto platform.