Crypto Lending & Borrowing: What Is It And How Does It Work?
Crypto lending and borrowing have long been pillars of the burgeoning decentralized finance (DeFi) sector.
In fact, it’s no exaggeration to say these permissionless protocols have reshaped the way many individuals and institutions have accessed loans and earned interest over the last three years.
Understanding how crypto lending and borrowing works is vital for anyone looking to navigate this new realm.
In a nutshell, crypto lending and borrowing involves the use of crypto (including, in some cases, NFTs) as collateral to secure loans, or as a deposit to earn interest.
While lending lets token-holders lend assets to borrowers in return for interest payments – akin to a savings account in a bank but with higher yields – borrowing enables users to obtain loans by pledging their own holdings as collateral.
This mechanism provides liquidity to asset-holders without the need to sell their investments, a major advantage in a market notorious for its volatility but in which many investors have high long-term hopes.
The above sounds relatively simple, but the crypto lending and borrowing market has evolved at a rapid rate: there are so many competing platforms, it’s tough for industry newcomers to get up to speed and know what the hell’s going on.
Moreover, the financial primitives have also evolved: flash loans, native token staking, learn-and-earn, CeFi loans, liquidity pools.
In other words, it’s a minefield out there!
Whether you’re a budding crypto lender looking to put your holdings to work, or a prospective borrower who’d like to access capital, there is no shortage of options both from centralized and decentralized providers.
Platforms in the former bracket (Binance, crypto.com, etc) manually manage the process while DeFi
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