What is a crypto lending service?
Crypto lenders connect savers with borrowers who will pay interest.
In the last few years, there has been an explosion in the number of companies that offer interest on virtual currencies. These centralized or decentralized platforms connect crypto savers with people who are looking to borrow assets — and will pay interest in return.
This all sounds exceedingly attractive: Not only can someone who is going long on crypto see their capital appreciate in value, they can grow it at the same time. However, it’s crucial for those who are interested in pursuing this to do plenty of research to ensure that they’re entrusting their digital assets to a credible organization which has safeguards in place to ensure that their savings aren’t plunged into jeopardy at any time.
Why use a crypto lending service?
By storing your cryptocurrency holdings with a lending service, you can make your digital assets work for you.
For years now, the message to crypto enthusiasts has been constant: Hodl.
But if crypto is left to languish in a cold wallet for several years, it can also end up being an unrewarding one. Sure, you can see huge gains, such as Bitcoin’s jump from $30,000 to $60,000 in the first six weeks of 2021. But, there can also be long declines, like the crypto winter of 2017-2018, when BTC dropped from more than $20,000 to less than $4,000 — and it took almost three years for the digital asset’s value to rise back to that level once again.
There’s also a downside to letting Bitcoin, Ether and altcoins languish away in cold storage: Although their value may rise, they don’t end up working for the investor. We’re seeing a very similar situation in the fiat world right now, where interest rates remain at record lows across many major economies. This is catastrophic news for savers — they are actually losing money to inflation — and sadly, it doesn’t seem like there’s going to be a meaningful interest rate rise any time soon.
But there are ways that crypto enthusiasts can ensure their digital assets are working for them. In recent years, there has been an explosion in the number of companies that offer interest on virtual currencies. These centralized platforms connect crypto savers with people who are looking to borrow assets — paying interest in return.
What should you look for when choosing a crypto lending service?
Be sure you understand everything from fees charged to the length of lock-in required.
You’ll want to begin by considering whether the company offers interest accounts in the cryptocurrency that you’ve invested in. Most organizations support the likes of Bitcoin and Ether, alongside stablecoins such as DAI, USDC and USDT. Other platforms do enable you to earn interest on digital assets with a smaller market cap, but naturally, not every coin is supported.
Then you’ll want to understand who’s doing the borrowing. While some companies offer lending services to individuals, others focus mainly on corporations.
Next, it’s time to shop around and ensure that you’re getting the best interest rates available. You’ll also want to dig deep into the terms and conditions that are associated with depositing your crypto in one of these accounts. Will you have to submit to a lock-in period, or make a minimum deposit? How frequently is interest paid out, and is it done in crypto or fiat? Are deposits and withdrawals instantaneous? Are there any other fees that you’ll need to be aware of?
One platform that offers interest on crypto savings is Hodlnaut, which currently manages over $250 million in assets, has more than 2,500 users, and supports five assets. There are no fees for those making deposits, registration can be completed in under five minutes, and users can complete a straightforward Know Your Customer form in order to be eligible for interest payments. Interest that accrues on crypto deposited in the platform is paid out once a week on Mondays, and rates are calculated based on market demand. Hodlnaut provides a competitive rate on Bitcoin and Ethereum, and historically has not changed their rates despite many competitors having recently lowered their rates.
What security features should you look for?
Strong security, cold storage with an asset custody service, and insurance are all vital.
You’ll want to check the approach that each platform has to ensuring that borrowers meet their repayments on time — and that there are safeguards in the event of a flash crash, just like the one that we saw back in March 2020.
According to Hodlnaut, safeguards against hacking is a top priority. The platform runs on Amazon Web Services and makes full use of industry-grade SSL encryption — with data about all users anonymized as much as possible. Two-factor authentication is offered for all accounts to maximize security, and no hot wallets are used to store crypto that has been deposited.
It has also teamed up with Fireblocks for its wallet infrastructure — and offers insurance cover for assets in conjunction with Nexus Mutual, a type of protection that isn’t always easy to find in this burgeoning space.
What legal safeguards should you look for?
Working with a licensed crypto company offers clients legal rights and helps ensure that they don’t run into regulatory trouble.
Financial regulators and international banking bodies around the world are cracking down harder and harder on crypto companies that do not follow regulations, and it’s not just securities law violations they’re looking for anymore. Most notably, any firm dealing with crypto could face serious consequences if it doesn’t have Know Your Customer and anti-money laundering standards in place.
One of the best ways to ensure that your cryptocurrency is in the hands of a company that won’t run into legal trouble is to choose one that is licensed by an internationally respected financial regulator. In addition, entrusting your crypto to a regulated entity can afford you some protections in the event that something goes wrong.
Holdnaut has been certified by the Singapore Fintech Association, an accreditation that in turn has been recognized by the Monetary Authority of Singapore. Executives at the business are now seeking to become the first licensed and regulated entity within the crypto borrowing and lending space in Singapore.
The company has now been in operation for two years, and it has entered into a number of partnerships to enhance its offering further. A new collaboration with Jumio, which provides AI-powered, end-to-end identity verification and KYC solutions, ensures that Hodlnaut customers can quickly and easily get onboarded on the platform.
Hodling takes patience, nerves of steel, and discipline. Saving it safely can create a powerful incentive for staying on the rollercoaster.