Crypto lending and borrowing

Crypto lending lets you earn interest by lending your coins, and borrowing lets you take a loan using crypto as collateral. It happens in two very different forms.

In DeFi, protocols such as Aave and Compound match lenders and borrowers through smart contracts. Loans are overcollateralised: to borrow $1,000 of stablecoins you might need to deposit $1,500 of ETH, and if your collateral falls too far in value, it is automatically liquidated. Interest rates float with supply and demand.

Centralised lenders take custody of your coins and lend them on. In 2022, several large platforms, including Celsius, Voyager and BlockFi, froze withdrawals and went bankrupt after risky lending and market crashes, leaving depositors with large losses. Centralised "earn" products are not bank deposits and have no deposit insurance. Before lending, understand who holds your assets, how interest is generated and what happens if the platform fails.