Explained: The world of crypto lending

What is the News?

Major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” market conditions sparking a sell-off across crypto markets.

What is Crypto Lending?

Crypto lending is essentially banking – for the crypto world. Just as customers at traditional banks earn interest on their savings in dollars or pounds, crypto users that deposit their bitcoin or ether at crypto lenders also earn money, usually in cryptocurrency.

What are the benefits of Crypto Lending?

While savings at traditional banks offer small returns due to historically low-interest rates, crypto lenders offer much higher returns – at the very top end as much as 20%, though rates depend on the tokens being deposited.

What is the present status of Crypto Lending?

Crypto lending has boomed over the past two years as decentralized finance or “DeFi,” platform. 

These platforms are easier to access than banks. Moreover, they are also being promoted as financial services where lenders and borrowers can bypass the traditional financial firms that act as gatekeepers for loans or other products.

What are the risks involved in Crypto lending?

Crypto lenders aren’t overseen by financial regulators. That means that customers who hold their crypto at the platforms could lose access to their funds – as happened with Celsius recently.

Crypto lenders also face other risks, from volatility in crypto markets that can hit the value of savings to tech failures and hacks.

Source: The post is based on the article “Explained: The world of crypto lending” published in Indian Express on 13th June 2022.