I have been into with various Crypto Lending platforms for awhile now and thought i’d share some of my thoughts and experiences on each. Some of these are Decentralised Finance (DeFi) platforms while others are not.
If you don’t know what Crypto Lending is about it is essentially a place where you can lend out your Cryptocurrency and earn interest. Cryptocurrencies typically accepted will be Bitcoin, Ether or even Stable Coins. The same platforms allow you to also borrow cryptocurrencies if you have provided collateral. I am just going to focus on the lending parts as passive income is what I am seeking.
Perhaps you have some spare cash sitting around in your boring bank account earning a dismal 1–2% interest per year. Maybe you are curious about getting some exposure to the cryptocurrency mania but unsure about all that volatility. If you are looking for a lower risk entry into Cryptocurrencies then Stable Coins and Decentralised Finance (DeFi) applications could be for you.
First step is to obtain some stable coins. You can do this through converting your USD to either PAX, USDT, GUSD, USDC, TUSD or DAI. Take note that not each stable coin is equal and some are more suitable to you over others. Some might not be supported by your jurisdiction which means you may not be able to redeem them back to your country’s bank account. Also even though they are supposed to be pegged 1:1 with the US Dollar in reality they fluctuate according to demand. The DAI has been trading below $1 for quite awhile and is about $0.97 currently.
Stable coins are supposed to be pegged to the USD at 1:1 however there has been various fluctuations of the peg due to the Fiat conversion difficulties certain users are facing.
After you have your stable coins it is just a matter of transferring them to your DeFi of choice. Once the coins have been deposited you automatically start earning interest.
Here I have a table that compares the platforms Compound.Finance, DharmaLever, Celsius, BlockFi and Nexo. Some of the cells are coloured in Green or Red to highlight which items stand out as stronger or weaker.
I have tried out each of these platforms so will give my review and comparison of each based on personal experience.
Compound.Finance — The most decentralised platform managed by Smart Contracts deployed on the Ethereum network. Which makes it the most secure and trustworthy platform to store your cryptos. It loses points however because unfortunately you can only lend out the DAI stable coin on Compound. The DAI interest rate is quite good and changes dynamically in real time based on supply and demand. Ether can also be lent out but at the lowest interest rate out of all the platforms. A big positive is that the compounding interest is calculated daily. Compound is a nice platform that gives us a taste of what a DeFi applications can be. It is a shame that it doesn’t support more coins.
DharmaLever- Partially decentralised through smart contracts. They claim you can earn up to 14% in interest. The way you lend out your crypto is by creating a lending offer which can then be taken up. When I tried to lend out some DAI it was outstanding even after 4 days. It has by far the highest interest rates for DAI but nobody took up my loan. I ended up cancelling the offer. Dharma also is the only platform where your crypto is locked up and thereby disabling the ability to withdraw funds whenever you want. Funds are locked for 90 days! Well at least they have a nice simple and clean UI.
Celsius- The guy that invented VOIP has built a nice Mobile App that manages your crypto lending. It accepts a nice variety of stable coins and cryptocurrencies with pretty good rates. All stable coins besides DAI offer 7.1% which is much better than your everyday bank account. It is the only platform with a mobile app which gives it further differentiation. The security is decent with google 2FA and the whitelisting of withdrawal addresses. One let down is that interest is compounded weekly and not daily.
BlockFi- They have over $50 million in crypto assets in their interest earning accounts. The platform seems a little immature at the moment as the withdrawal processing is quite manual and requires a phone call for verification. They are working on this however so this won’t be an issue for much longer I hope. BlockFi’s biggest let down is that interest is paid out monthly and that there are minimum deposit amounts. Still the interest rate for Ether is the highest at 6.2% so it still might present to be the best option for you.
Nexo-The only platform with Fiat on and off ramps. Also all Crypto is secured by its partner Bitgo which is insured by Lloyd’s. Nexo only accepts some stable coins and doesn’t let you earn interest on Bitcoin or Ether. They could in the future so stay tuned. The nice part of Nexo is that interest is paid out daily.
Overall for most people Celsius might be the application that will suit the most people. It supports the most stable coins and cryptocurrencies. There is no min balance before you start earning and it comes in a Mobile App so you can easily check your account. For the lazy person Celsius is the one for you.
If you however just hold some specific coins then it will be better to have a combination of the other platforms.
For example if you just held the DAI stable coin then Compound.Finance would be the best choice as it has high interest rates and gives you the most control over your assets.
On the other hand if you hold Bitcoin, more than 25 Ether and some stable coins then you would be best using BlockFi for the best Ether lending rate and Celsius for stable coin and Bitcoin lending.
Unfortunately there is one platform that I would stay away from in its current format. I don’t like the way DharmaLever works with 90 day loan terms and how loan offers need to be created and then taken up before you start earning. 90 days in this space is just crazy long considering if you just lent on an exchange the average loan terms are 2 days. I gave them some feedback and they told me they are working on faster ways to match loans. I guess I will wait and see what future versions bring.
The potential for DeFi is huge and I am definitely always on the lookout for new and innovative platforms that utilise Smart Contract technology. Can’t wait for the next generation products in this space that offer more than just lending and borrowing!