How to Choose Crypto Lending Platforms to Maximize Your Returns
The cryptocurrency industry has gained attention more than ever in the past few years, attracting an array of new investors. Some of the biggest names include Visa, PayPal, Facebook, JPMorgan, etc. The industry is flourishing faster, that many people are waiting for cryptocurrency to become as common as fiat currency. Meanwhile, people are also looking for new ways to earn with their cryptocurrency. Crypto lending is one of the simplest ways to earn returns. But is it possible to maximize returns?
Here in this article, we have discussed how to choose crypto lending platforms that can help you maximize your returns.
What is crypto lending?
Cryptocurrency lending platforms allow investors to receive dividends on their cryptos by lending out to borrowers. In this way, they can earn interest without requiring selling or HODLing cryptos. So they can have a passive income without selling the cryptos.
While borrowers have to deposit collateral in the form of cryptos more than the value of the loan.
How does crypto lending work?
Crypto lending work almost similar to a mortgage loan. Lenders and borrowers are connected at one place through a crypto lending platform, acting as a trusted intermediary.
In crypto lending, a lender deposits his cryptos to a platform to offer for lending purposes and to earn interest on them. A borrower requests a lending platform for a loan by offering collateral. Upon approval, he receives funds in his account. The lender receives interest on a monthly or yearly basis as agreed. The borrower cannot use his collateral until he returns the loan and interest to the lender. Once all payment is paid back, the borrower gets back his collateral. In this way, both borrower and lender are benefited without selling their cryptos.
Parameters for choosing a crypto lending platform
Your crypto lending experience generally depends on the platform you choose. Therefore, it is imperative to choose the right platform. The following are the few parameters that you must consider before choosing any crypto lending platform.
The interest rate or the dividend is the amount you earn on your assets. Different platforms offer different interest rates depending upon crypto. It can be from 2% to up to 17%. It also varies from crypto to stable coin.
Cryptocurrencies are highly volatile, and their prices keep on changing depending upon market demand. Therefore, it is crucial to choose the right cryptocurrency for lending purposes. Also, when you a lending platform, check what the supported cryptocurrencies are.
Different platforms offer different terms and conditions on lending. For example, the lending duration could be different or how the platform acts if the borrower fails to pay back the loan amount.
Community feedback can significantly help you to choose a lending platform. Always go for a well-reputed and trustworthy platform that has a good security record.
Maximize your returns
Considering the parameters mentioned above, once you have chosen a platform offering returns on good terms, the next thing is how to maximize your returns. So, let’s learn how to maximize your returns.
1- Pay attention to interest rate
Some platforms offer higher interest rates on a specific investment, after which it goes back to the base rate. For example, the BlockFi lending platform on Bitcoin saving accounts allows investors to earn 6% interest for the first 2.5 Bitcoin. For any number above 2.5 Bitcoin, it pays only 3% (base interest rate).
In this situation, you can increase your returns by spreading your assets over several platforms.
2- Choose the platform’s lending token
Buying the platform’s lending token can also help you maximize your profits. Also, choose to receive interest payment in lending tokens. On the other hand, if you choose to invest with volatile cryptocurrencies, the interest rate will be lower.
3-Do NOT trust unrealistic offers
Some platforms offer the highest interest rates without transparently explaining the terms and conditions. Or they tell you unrealistic expectations about their lending token regarding its future performance. Believing such offers and holding these tokens for an extended period is most likely to be risky because there is no guarantee if the price of the token will increase or not.
4- Follow the market moves
You must know what is happening in the crypto industry and how prices are changing. It will help you choose the right crypto, and thereby, you will be able to earn interest accordingly.
You can increase your crypto lending yield by following the tips mentioned in this article. However, it is necessary that you understand the risks associated with any strategy you follow. Create a proper understanding and then decide accordingly.