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Learn how to earn defi passive income by lending crypto, including Bitcoin, on decentralized finance platforms.
Generating passive income on Bitcoin
Crypto is known for its ups and downs, which has led to the rise of hodling. This term describes crypto owners who cling to their assets regardless of market conditions. Now, you can lend your Bitcoin or other cryptocurrencies to defi protocols based on the Ethereum blockchain, offering attractive interest rates on the lent crypto. Lending Bitcoin is one of several ways to earn defi passive income, turning your crypto stash into a business opportunity.
According to Antonopoulos, through defi, one can put their crypto holdings to productive use. Specifically, one could lend their Bitcoin to a defi platform such as MakerDAO and start earning interest on it. By using defi smart contracts, one could convert their BTC into Ethereum or other cryptocurrencies and subsequently put it on a platform where it could be lent out.
Through crypto lending, hodlers and other crypto users can earn interest by lending their digital currencies. Traditional savings accounts at banks offer an average annual percentage yield (APY) of around 0.57%. With crypto lending, the potential to earn significantly higher interest on your crypto assets without selling them is on the table.
What is defi lending?
Defi lending involves lending your crypto to a decentralized finance platform and receiving interest on the loaned amount. Decentralized lending platforms facilitate connections between lenders and borrowers, allowing you to make money with defi by lending crypto while managing your risk.
How does defi lending work?
Defi lending is usually facilitated through institutions that act as intermediaries by finding borrowers for your loaned funds. These platforms then distribute the interest earned from these loans to you as yield rewards. You’ll earn interest in the form of APY whenever you lend your Bitcoin, Ether, Dai, or whatever other digital asset you hold.
APY accrues during the period when your crypto is deposited with a decentralized lending service. Some platforms may require you to lock up your crypto for a specific duration to maximize APY. Your loaned crypto is provided to borrowers, who must deposit collateral to ensure loan repayment.
How to choose a defi lending platform
When choosing defi projects for passive income, consider factors like security, fees, lockup rules, annual percentage yield, and yield terms. Security is crucial when entrusting your crypto to a third party for custody. Compare platform costs, be aware of potential hidden fees, and consider lockup periods before deciding where to lend your crypto.
How to sign up for a defi lending platform
First, visit the website of your chosen defi platform and log in or sign up for an account. Access the “Lending” dashboard to view expected APYs and other details for your cryptocurrency. Transfer your crypto to the lending platform by following the instructions provided. Your transferred crypto should be reflected in your account instantly.
Risks of lending crypto
Moving funds to defi platforms could expose you to increased gas prices and potential capital loss. Regulatory concerns, platform risks, and asset lockup are other risks associated with lending crypto. It’s important to be aware of these risks and how the platform you choose mitigates against them.
Final thoughts
As we explore the world of decentralized finance lending, it’s crucial to balance the potential for defi income with the inherent risks. By staying informed, conducting thorough research, and choosing reputable platforms, you can enhance your passive income-earning strategies using crypto through defi lending.
Disclaimer: This article does not represent investment advice. The content and materials featured are for educational purposes only.
