What Is DeFi Lending?
DeFi stands for “decentralized finance,” a relatively new system that allows people on the blockchain to borrow and lend cryptocurrency similar to the traditional transactions with fiat money. DeFi lending does not rely on intermediaries, so any individual can receive a cryptocurrency loan, unlike traditional banks requiring credit checks and your vehicle or even house as collateral to qualify.
How Can You Lend Crypto?
If you have crypto coins in your wallet, you can earn passive income from your assets. DeFi platforms allow you to lend your coins for a fixed period. This is called “yield farming” – in short, it’s the same as lending money to a bank, but instead, you’re lending crypto to someone else who needs it temporarily. At the end of the contract, the crypto coins are returned to you.
To lend crypto on a DeFi platform like SmartCredit.io, you only need to be matched with a borrower who will submit collateral. You lend your cryptocurrency and earn income in the form of interest paid by the borrower. At the end of the fixed-term contract, you will receive your crypto back.
The Benefits of DeFi Lending
DeFi lending is as safe and secure as the platform you choose. Undoubtedly, you should not hand over your cryptocurrency without thoroughly researching the platform and ensuring it has a stellar reputation. With that in mind, here are some advantages of using safe platforms like SmartCredit.io:
- All contracts are fixed-term, so you know exactly when you’ll receive your crypto back;
- Interest rates are fixed, providing peace of mind, and higher than the interest paid by banks;
- If the borrower defaults, you are entitled to their collateral; thus, your principal and interest payments are secured;
- SmartCredit further provides a loss provision fund for cases where the collateral is not enough to cover the full amount.
Also, you are able to automate the whole process of entering into new contracts, so you can continuously earn passive income without any effort. Unlike conventional lending, you do not split your earnings with third parties. At the same time, platforms like SmartCredit provide only non-custodial lending – in other words, the assets are solely controlled by borrowers and lenders.
Summary
While the industry is still in its infancy, many people consider it a lucrative investment opportunity. DeFi lending, or decentralized finance lending, allows crypto owners to generate passive income from their idle coins. The rewards are higher than traditional banking since there is no intermediary that needs to manage the whole process. DeFi lending is a disruptive force that promises quick, costless, and safe transactions for people all around the world while potentially protecting against inflation.
Published: 03/18/2022