You buy cryptocurrencies in the hope that their prices will rise, and then you can sell them for a profit. Some cryptocurrency exchanges allow you to lend them. Two such cryptocurrency exchanges are ZebPay and Vauld.
What is crypto lending?
You can deposit (i.e., lend) Bitcoin (BTC), Ethereum(ETH), Tether USDT, Dai (DAI), and many other cryptocurrency on ZebPay and Vauld exchanges.
ZebPay lets you lend for as little as 7 days up to as long at 90 days. The term you choose will determine the rate of return. You can earn annual returns up to 3 percent for Bitcoin, 7 percent on Ethereum, Dai and 12 percent on Tether, respectively. You can lend in six different cryptocurrencies.
Avinash Shekhar is the Co-CEO at ZebPay, a crypto-asset exchange. “This lending feature targets HODLers, long-term crypto investors, as it allows them earn a passive income in addition to any gains from crypto prices rising.”
Vauld lets you lend cryptocurrency for between 30 and 90 days. Annual returns can be as high as 6.7 percent for Bitcoin and Ethereum and 12.68 percent for DAI and Tether. You can lend up to 30 different cryptocurrencies and earn interest.
To earn interest through lending, you must transfer your cryptocurrency to an exchange wallet. External wallets, such as MetaMask or Trust, cannot be linked to the exchanges.
The principal amount and the earned returns will be deposited in your trading account upon maturity.
If you borrow a Bitcoin on ZebPay for three months, your wallet will be charged with interest in bitcoin cryptocurrency and the principal at the end of the loan term.
This cryptocurrency can be withdrawn at any time prior to maturity. The future returns may attract a penalty. Shekhar, ZebPay, says that penalties have been waived for now because it is a new feature. Opting out of Vauld before maturity is possible without paying any fees or penalties.
What works
Passive returns are available to investors. Shekhar says that passive returns can help grow investments by making existing crypto holdings appreciate more. These gains are in addition to the increases in crypto prices.
“With this new feature it seems like an evolution in the shadow banking system. Rishabh Parakh (founder of NRP Capitals) says that crypto could be a good investment for long-term investors.
What does not work?
Your crypto exchange could be hacked. This is the biggest risk. Coin Crunch India founder Naimish Sanghvi says that exchanges are less likely to be hacked or lose all their funds due to the increased security measures they use now.
“ZebPay is focused to ensuring security for customer deposits and wallet holdings. The majority of coins traded on the exchange are kept in cold wallets that are not accessible online. Shekhar says this reduces the risk of hackers.” He adds that funds are also insured according to international standards in order to reduce the risk of security breaches.
Parakh says that there is another risk to cryptocurrency being stored in an exchange wallet. This could be due to the exchange going bankrupt. These instances have happened in the past and investors have suffered losses from crypto investments.
You can earn interest income by lending to cryptocurrency exchanges. If prices drop and you wish to exit, you must notify the exchange in advance. Vikram Subburaj (CEO and co-founder of Giottus Cryptocurrency Exchange) says that there is a possibility of price appreciation if you lend with a lock in feature. If you leave in the middle or end of your term, there will be a penalty.
Parakh states, “There is no regulator to supervise the lending feature on the exchange. There is no guarantee that the interest income will be guaranteed.” Furthermore, exchanges could discontinue this feature in the event of regulatory interference.
Do you need to lend?
The exchanges offer a lending option that encourages investors to keep their cryptocurrencies in exchange wallets. Sanghvi says that interest rates on exchanges are lower than Decentralized Finance (DeFi), and it takes only a few clicks to earn interest on the exchanges. Sanghvi says that exchanges have the potential to add multiple cryptocurrency to their portfolios, rather than just the most popular market-cap ones.
Cryptocurrency earnings can be volatile so it is possible to not exit because of lock-in.
Parakh advises, “Lend only what you can afford to lose.” Moneycontrol suggests that you avoid lending cryptocurrency coins. It is too risky to lend.
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