What Is Crypto lending?
Major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers on June 13, 2022, citing “extreme” market conditions, sparking a sell-off across crypto markets.
- Celsius is a crypto lender, which essentially means it is a bank of the crypto world. Crypto lenders allow customers to deposit their coins with them for an interest, and then lend out cryptocurrencies to earn a return. Crypto lenders make money by lending – also for a fee, typically between 5%-10%.
- New Jersey-based Celsius, New York-based Genesis, U.S. lender BlockFi and London-based Nexo.
- Crypto lending has boomed over the past two years, along as decentralised finance, or “DeFi,” platforms. DeFi and crypto lending both tout a vision of financial services where lenders and borrowers bypass the traditional financial firms that act as gatekeepers for loans or other products.
- While savings at traditional banks offer paltry returns due to historically low interest rates, crypto lenders offer much higher returns – at the very top end as much as 20%, though rates depend on the tokens being deposited.
- Crypto lenders aren’t overseen by financial regulators.
- That means that customers who hold their crypto at the platforms could lose access to their funds – as happened with Celsius recently.
- Crypto lenders also face other risks, from volatility in crypto markets than can hit the value of savings to tech failures and hacks.