Many cryptocurrency holders choose to hold their assets long-term, waiting for market conditions to improve before making a sale. However, there are alternative ways to earn passive income from crypto without needing to trade or sell. One such method is staking. Crypto staking is similar to placing fiat in a high-yield savings account—your funds are locked for a set period and generate interest. In the crypto space, your coins are locked and help secure the blockchain, earning you rewards typically higher than those from traditional financial institutions.
Another strategy for growing your crypto portfolio is lending your digital assets through crypto lending platforms. Much like how banks loan out deposited funds, crypto lending allows investors to earn interest—often referred to as "crypto dividends"—by making their coins available to borrowers. The return rates vary based on the asset: stablecoins tend to offer yields between 10% and 18% annually, while other cryptocurrencies average around 3% to 8%.
Types of Crypto Lending Platforms
There are two primary types of platforms: centralized and decentralized. Centralized platforms, such as Aqru, BlockFi, and Nexo, act as intermediaries, managing loans and interest payments. Decentralized platforms like Aave, MakerDAO, and Compound use smart contracts to automate the lending process without third-party control.
Lending can also be automated or manual. In automated systems, users earn passive income without manual intervention. Manual platforms offer a marketplace where lenders can browse and select from borrower offers with defined terms.
How Does Crypto Lending Work?
Lenders deposit their cryptocurrency into a platform, which pools the assets and loans them to approved borrowers. The borrowers repay the loan with interest, which is distributed to the lenders proportionally. Lenders can choose to withdraw the interest or leave it compounded within the platform for higher future gains.
It’s worth distinguishing crypto lending from peer-to-peer (P2P) models. In P2P platforms, borrowers are matched with individual lenders. However, all processing, eligibility checks, and collections are handled by the platform rather than the participants directly.
Choosing a Crypto Lending Platform
Supported Coins: Each platform offers different rates depending on the coin you deposit. Some offer higher yields for specific tokens or stablecoins.
Lock-In Period: Some platforms enforce a minimum time frame for locking funds, restricting access until the term expires. Others offer flexible terms with no lock-in requirements.
Annual Percentage Yield (APY): APY reflects the actual earnings over time. It may increase if you stake the platform’s native token or meet specific conditions.
Dividend Distribution: Interest payouts may be issued daily, weekly, or at the end of the term, depending on the platform's settings.
Platform Security: Assess each platform’s security measures and historical performance. Cyberattacks on crypto platforms are not uncommon, so due diligence is crucial.
Fees: Compare the transaction and withdrawal fees between platforms, which may vary based on the token or loan type.
Geographical Restrictions: Some platforms are not available in every country. Verify if you’re eligible based on your location.
Risks of Crypto Lending
Unlike traditional banks, crypto lending platforms are mostly unregulated and usually do not offer insurance on digital assets. If a platform faces insolvency or fraud, investors may lose their funds entirely. Diversifying your holdings and avoiding all-in strategies is highly recommended.
Platforms may temporarily freeze accounts due to liquidity issues, regulatory pressure, or security breaches. In such cases, accessing your assets can take an extended period.
Changes in APY or platform policies can occur without prior notice, particularly during volatile market conditions or after new government regulations are introduced.
Monero and Crypto Lending
Monero (XMR) is a privacy-centric coin that cannot be staked in its native protocol, as it runs on proof-of-work. However, XMR can be used on lending platforms such as YouHodler, CoinLoan, Nexo, or Binance Lending Program. While these platforms offer interest-earning options, keep in mind that they often require KYC and introduce privacy trade-offs.
Whether or not you plan to lend your XMR, secure storage is essential. It’s recommended to maintain both hot and cold wallets for added security. If you’re in need of a reliable, web-based Monero wallet, try XMRWallet. It offers a free, open-source, client-side solution with fast, anonymous transactions and full control over your private keys.
