Lending & Borrowing
Lending & Borrowing Overview
- What do we mean by Lending & Borrowing?
Crypto lending allows individuals to lend and borrow cryptocurrencies in exchange for a fee or interest. Many view this as an effortless way to earn APY on crypto assets they hold or to access affordable credit.
How does it work? By providing collateral, you can immediately secure a loan to begin investing. This can be facilitated through a DeFi lending DApp or a crypto exchange. However, if your collateral dips below a specified value, you'll have to replenish it to the necessary amount to prevent liquidation. Once you repay your loan along with a fee, your capital is released.
Crypto loans streamline the borrowing and lending process, with smart contracts fully automating the proceedings.
What are the risks? Akin to any blockchain-based project, smart contract, or investment, crypto lending comes with financial risks. For instance, if a volatile cryptocurrency is used as collateral, liquidation can occur overnight. Smart contracts are also susceptible to hacking, attacks, or exploitation, often resulting in substantial losses.
It's important to realize that when you engage in lending or borrowing, you relinquish custody of your coins, thereby losing control and limiting your liquidity.
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