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The process of lending cryptocurrency assets with an accrued interest rate and due date is known as crypto lending.
The process of crypto lending often occurs through cryptocurrency exchanges or online lending platforms to connect borrowers to lenders.
Lenders of crypto lending are comprised of institutional lenders, like hedge funds and asset managers, individual participants, or entities seeking to accrue interest.
On the opposite end of the spectrum, borrowers of crypto lending include market makers, proprietary traders, investment managers, hedge funds, traders.
These entities or individuals look to short the market, arbitrage-based traders, or entities who need to fulfill an obligation with another party.
Different Types of Crypto Lending
While the process of crypto lending is simply, there are four types of crypto lending practices that traders should familiarize themselves with.
Companies, individuals, or entities who possess an excess of cryptocurrencies can earn additional cryptocurrencies through crypto lending.
Crypto-to-crypto lending materializes in the form of a smart contract, where crypto lenders can earn interest for a specific period.
Common cryptocurrencies that are lent include Bitcoin, Ethereum, and Altcoins. Two examples of crypto-to-crypto lending include Nuo and Coincheck.
Moreover, margin lending is a new type of crypto lending, which enables lenders to fund varying cryptocurrencies to borrowers as opposed to a single crypto asset.
Typically, lenders of margin lending fix their interest rate and contract duration while occurring over a centralized platform such as Nuo and Bitfinex.
While less common, crypto-to-fiat lending occurs when individuals, businesses, or entities require cash.
Cryptocurrencies are used as collateral while the lender receives a fiat return which generally is credited to a linked bank account.
Finally, crypto-credit lending occurs when entities need capital.
Opposed to peer-to-peer (P2P) lending, crypto-credit lending places less emphasis on credit history although this comes with a sacrifice of regulation.