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Understanding crypto lending: What it is and how it works


A popular adage in the world of cryptocurrency is to HODL, or Hold on for Dear Life. The idea is to keep your crypto assets safe in a wallet until it appreciates over time. But you wouldn't leave your cash just sitting in a savings account, earning little to no interest, would you? So along those same lines, it makes more sense to put your crypto to work.

Enter crypto lending. With crypto lending, you can earn interest on the Bitcoin or altcoin you're HODLing. Plus, it gives borrowers a way to unlock the value of their crypto by offering it as collateral for a loan. 

So, what is crypto lending, and does it work? Keep reading to get the answers to these questions and much more.

What Is crypto lending?

If you're familiar with traditional finance, you already know what taking out a financial loan means. Usually, it's a bank or some other company (the lender) loaning someone money (the borrower). The borrower pays the loan back with interest, which is how the lender makes money. This is pretty much what crypto lending is, except using cryptocurrency.

However, what if it was your funds being lent and you’re the one earning interest? Sounds pretty nice, right? The good news is that there are platforms out there that let you loan out your crypto. However, there are a few differences between traditional finance lending and crypto lending.

How does crypto lending work?

Lending cryptocurrency works a lot like peer-to-peer (P2P) lending. Borrowers and lenders connect through an online platform and agree on the terms and rates of the loan. While the way this is accomplished may vary depending on what platform you use, the basic concept is almost always the same.

Lenders make their digital assets available at specific interest rates. Typically, a lender will make their cryptocurrency available for one of two reasons: personal use or margin lending. When the funds become available, a borrower will request a loan. The borrower then repays the cryptocurrency over a set amount of time at the assigned interest rate.

Centralized crypto lending platforms

A centralized crypto lending platform is an entity or company that negotiates loan agreements for its users. These types of crypto lending platforms are custodial, which means they take custody of the user's collateral. Centralized platforms attract users through margin lending and the offer to get the most of their crypto in a safe environment. 

This appeals to many users due to the inherent risks and volatility of the crypto market as a whole. Additionally, it's commonplace for sites to provide lenders with interest rates that are much better than what you'll find in the traditional market. Most centralized platforms require users to complete KYC (Know Your Customer) verification, which confirms a user's identity prior to engaging with the site.

Here are a few examples of centralized crypto lending platforms.


One of the most well-known crypto lending platforms is BlockFi, which launched in 2017. Through BlockFi, users have access to crypto financial services like trading, interest accounts, and crypto loans. Their financial products are designed to help crypto investors put their digital assets to work.

With BlockFi, users have access to USD crypto-backed loans that start at a 4.5% APR. It's a great way to do more with your crypto if you're willing to offer your Bitcoin (BTC), Ethereum (ETH), or Litecoin (LTC) as collateral.  

Celsius Network

Another popular lending platform similar to BlockFi is Celsius. Through the Celsius Network, users can lend or borrow various cryptocurrencies, including stablecoins like USDT, GUSC, TUSD, USD Coin, and PAX. The platform also has its own native token, CEL, which allows users to earn additional interest rates.

Celsius makes it easy for users to get a crypto loan. Plus, you can choose from a long list of collateral options. Just choose your stablecoin, pick your collateral and interest rate, choose your loan amount and loan terms, and get approved. There's no need to verify your credit score or do a background check. It's really that simple.


Nexo is a platform offering multiple financial services, including crypto credit lines and crypto loans. Similar to Celsius, Nexo has its own platform-based token that provides users specific benefits, like earning dividends and higher interest rates. In addition to offering many financial services, Nexo sets itself apart by providing insurance for all its custodial assets up to $375 million.

There are more than 40 cryptocurrencies available with Nexo, so no matter what digital currency you own, you should be able to find something that works for you. Nexo also provides users with both a smooth user interface and high-quality security, so your funds are always safe and secure.


Like many other crypto lending platforms, Crypto.com offers users a way to earn interest on their digital assets. You’ll find some of the best interest rates in the industry, although your returns will vary. Through the Crypto Earn feature, Crypto.com users can lock their digital assets for a specific period of time while earning interest.

Crypto.com provides users with an easy-to-use interface that’s perfect no matter what your experience level. The platform offers instant loan options, flexible repayments, and competitive rates. Users can borrow loans in various cryptocurrencies, including Tether (USDT), Bitcoin (BTC), and Ethereum (ETH). 

Decentralized crypto lending platforms

Decentralized finance, or DeFi, loans are handled by code, which means there's no third-party entity or custodial platform that holds your crypto. Instead, these services use smart contracts — usually on the Ethereum or Binance blockchain — to automate loans. As a result, getting a loan on a DeFi platform is quick since no due diligence is involved.

Users on DeFi lending platforms have the ability to apply for a loan of any amount without the need to verify their identity with a third party. Additionally, DeFi is more transparent than its centralized counterpart. This means everyone has access to the smart contract protocols, and all transactions are stored on the blockchain.

Let's take a look at some well-known decentralized crypto lending platforms.


First up on the list of DeFi lending platforms is Aave, which runs via the Ethereum blockchain. This decentralized peer-to-peer (P2P) ecosystem offers users financial features that include lending and borrowing digital currencies. With Aave's P2P network, both borrowers and lenders are guaranteed agreed-upon terms and conditions.

Lenders on the Aave platform earn interest in real time, which is updated every second. This interest is moved to the user's wallet to be withdrawn anytime the lender needs it. Aave also offers short-term or “Flash” loans. These types of loans are great for speculative investors and helped put Aave on the map as a DeFi lending platform.


This multinational DeFi platform manages the creation of Dai, one of the first stablecoins to hit the crypto market. MakerDAO gives users a way to use Bitcoin and other altcoins as collateral for loans using Dai, which is pegged to the U.S. dollar. Since the Dai does not discriminate, any business or individual can use it to their advantage.

One of the cool things about the MakerDAO ecosystem is that it continues to grow and expand. There are now more than 400 services and applications integrated with the Dai token. These apps include games, wallets, DeFi platforms, and much more.


Compound is a decentralized lending platform that allows users to borrow or loan Ethereum-backed tokens. Anyone can participate in Compound's digital asset pool and start earning interest on their digital assets. Interest rates on the platform adjust based on supply and demand. 

The Compound DeFi lending system operates on audited smart contracts, which prevents the software from being exploited by a hacker. Compound also integrates seamlessly with Web 3.0 wallets like Metamask and Coinbase Wallet, so you can always know exactly what's going on with your crypto.

Put your crypto to work

As you can see, crypto lending isn’t as complex or complicated as some people believe. There are plenty of ways you can participate in crypto lending platforms in both the CeFi and DeFi markets. 

Crypto lending is just one of many ways you can put your digital assets to work for you. For example, there are DeFi platforms that allow you to stake or yield farm with your cryptocurrencies. With these sites, you can deposit your crypto, then kick back and reap the rewards.

One such option is Unagii, which supports multiple digital assets, so you're not limited to one choice. Plus, you'll earn much more with Unagii than you ever would with a traditional bank account. So get out there, do some research, and let your crypto get to work.

Unagii Team

We're a distributed team of dedicated strategists and engineers with a mission to redefine the digital asset yield experience.