Crypto Lending (1)

In recent years, with the growing popularity of crypto, there is a new form of consumer lending emerging - Crypto Lending.

What's crypto lending? Why do people participate in it, either as an investor or a borrower? And what are the risks for different stakeholders?

I am sharing the notes I made in the past 12 months here via a series of posts. Hope this will answer some questions you might have.

𝐂𝐫𝐲𝐩𝐭𝐨 𝐋𝐞𝐧𝐝𝐢𝐧𝐠

First, what's crypto lending?

Crypto lending is lending conducted via crypto.

Lending is a traditional financing activity. The only difference here is that the lending is based on crypto, instead of the traditional fiat money, such as the US dollar or your local currency.

𝐂𝐫𝐲𝐩𝐭𝐨 𝐋𝐞𝐧𝐝𝐢𝐧𝐠 𝐏𝐚𝐫𝐭𝐢𝐜𝐢𝐩𝐚𝐧𝐭𝐬

People can participate in crypto lending either as a depositor or a borrower.

𝘋𝘦𝘱𝘰𝘴𝘪𝘵𝘰𝘳

A depositor is someone who deposits crypto into the lending pool. Because depositors are looking for certain returns by depositing their cryptos, they can also be called investors.

Some also call depositors/investors as lenders - in the sense that they essentially lend their cryptos out to exchanges or borrowers.

However, lenders in traditional finance often refer to banks, which lend money out to borrowers. To avoid confusion, I prefer the terms of depositors or investors.

𝘉𝘰𝘳𝘳𝘰𝘸𝘦𝘳

On the other side, you have borrowers. They want to borrow the crypto. In some cases, they want to borrow traditional fiat money.

Both depositors and borrowers can be individuals (consumers) or institutions.