Cryptocurrency lending products have been one of the most lucrative ways to generate passive income, increase the value of digital asset holdings and investment portfolio over the last two years.
But as plunging cryptocurrency prices have taken a steep toll on some lending and borrowing platforms that specialize in those volatile assets, it is vital now to fully grasp how such lenders work and what are the risks involved.
Amid a brutal sell-off prompted by concerns of an impending financial crisis, many crypto-focused lenders were forced to take drastic steps after they became unable to cough up money to pay back its debts.
Celsius, once regarded as being one of the “big 3” lending platforms, froze all withdrawals, swaps and transfers. Vauld and Babel Finance also paused all transactions on its platforms and are exploring potential restructuring options.
Other prominent players are struggling to stay afloat during the turmoil. BlockFi and Voyager have both suffered significant losses and received bailout loans from FTX’s Sam Bankman-Fried. Meanwhile, major hedge fund Three Arrows Capital fell into liquidation after defaulting on huge loans.
With the fall of major brands like Celsius and BlockFi, it’s become crucial to have a thorough grasp of how each crypto lender operates and assess the reliability of their infrastructure.
This guide reviews some crypto lending platforms that are still holding up in the market – alongside some background information on its respective offering.
Based in Singapore, Cake DeFi is a platform that stands out for its stated commitment to security and transparency, which makes it one of the best crypto lending alternatives to Celsius and BlockFi.
Despite the ongoing crashes in cryptocurrency prices, Cake DeFi has amassed over $1 billion of total customer assets and close to a million registered users. The platform opens up a barrage of opportunities for investors to earn steady passive income through staking, lending, and liquidity mining.
Despite the simplicity of use, Cake DeFi pays much attention to the security of clients’ funds. Multiple security and AML checks are always carried out.
Cake DeFi’s staking program enables users to earn an APY of 31.5% on their idle digital assets. Those who deposit into lending batches are provided with returns at the rate of 6.5% APY within four weeks. Additionally, liquidity mining depositors can earn up to 75% interest within a year.
As more dominoes continue to fall in the tumultuous market for crypto assets, Cake DeFi believes that the industry as a whole should do more to ensure and safeguard its community assets.
Earlier in June, the company issued a statement to quell customers’ fears after the insolvency of big crypto lenders rattled the cryptocurrency world. The multi-regulated platform said the current market conditions have little or no impact on its daily operations and explained why Cake’s business is immune to the events impacting other platforms.
Explaining what actually sets them apart from Celsius and other competitors, Cake said it’s transparency and regulation.
As a Singapore-based fintech company, client assets are segregated in trust or custody accounts, which are designated for the exclusive benefit of Cake’s clients. This operation ensures that any funds sitting in these segregated trust accounts are available to be returned to customers in the event of the company becoming insolvent or bankrupt.
Standard regulatory requirements also include, among other protection standards, adequate capitalization and annual filings that can be easily accessed by applicants.
Furthermore, Cake DeFi acts as an agent or an intermediary for the services it provides. In simple terms, this means that it provides users a “safe passage” or access to decentralized finance (DeFi) products.
On top of that, Cake’s operations are living in a self-auditing state as all services are done on the blockchain. As a distributed database, all transactions, yields, master nodes and other key information are fully accessible and transparent.
While the crypto community suggests that the Celsius collapse could take a bunch of customer money with it, Cake warns that CeFi platforms such as Celsius, Binance and Crypto.com are arguably likened to a “black box” which offers limited transparency and control to other entities other than its staff.
On the regulatory front, Cake DeFi has recently secured a license from the Registrar of Legal Entities of Lithuania. The approval enables the firm to provide crypto trading services in Lithuania and other European countries.
As a clear sign of strength, Cake DeFi paid out $317 million worth of rewards to its users as of the end of first quarter of 2022. The platform has also launched a corporate venture arm with $100 million to invest in startups across Web3, the metaverse, the NFT space, gaming, esports, and fintech.
Nexo is a fast-growing cryptocurrency platform with competitive lending and borrowing rates. The platform allows users to put their idle crypto assets to work and have a predictable source of passive income, with up to 18% annual interest.
Nexo provides straightforward plans for investors to generate interest from their crypto deposits. However, the specific annual percentage yield (APY) you earn is dependent on your loyalty level and the token chosen.
The platform delivers a so-called “Earn in Kind” feature, which means that users will earn their interest in the same base currency. For example, Ethereum deposits will earn in ETH. The other option is to earn in NEXO’s native token which gives the holder an additional 2% bonus.
Next up we have Crypto.com, which is more focused on offering competitive lending rates for stablecoins, as well as crypto credit and debit cards with rewards. You can deposit your assets as collateral and take out crypto loans to fulfill your financial needs, use for margin trading on the Crypto.com exchange, or hedge on other exchange platforms.
Crypto.com allows users to borrow loans in cryptocurrencies, including USDC, USDT, BTC and ETH. With that said, the platform offers even higher yields when you decide to lock up your stablecoins for either one month (up to an APY of 8%) or three months. The latter option increases the yield to 10%, based on a 3-month lock-up period and minimum staking requirement of 40,000 CRO tokens.
When it comes to distribution frequency, Crypto.com pays interest for users on a weekly basis, which allows them to reinvest the funds back into another lending contract.
Hodlnaut is yet another platform that provides investors a way to earn interest on their cryptocurrencies by lending their holdings to those trading on margin, long-term hodlers, amongst others.
Based out in Singapore, Hodlnaut was founded in 2019 as part of the Antler portfolio company. The annual compounded interest rates that Hodlnaut pays ranges from 1.0% – 13.86%.
Hodlnaut offers digital asset loans to institutional clients with borrowing amounts starting at $50,000. Lock-up terms are open with a minimum of three months, while loan-to-value ratios are typically 70% or lower.
You can also swap and trade all tokens that are supported on the Hodlnaut platform.
While these crypto lending platforms are just a small selection of what’s available in the market, they’re among the best. In fact, there are enough options available to meet any needs, whether security, returns, interest rates, or transparency.
Despite the fact that some offerings, such as Cake DeFi, are still young, it is rapidly gaining momentum and have already established themselves within the community.
As noted above, Cake DeFi stands out in terms of yields, available tokens, and safety – as well as customer service, regulation, and other core metrics. This notion of trade-off is obviously crucial after the market crash has exposed flaws in the business models of many cryptocurrency lenders.
The current turmoil brings up a bigger risk of a loss of trust in the entire cryptocurrency and DeFi industries, which could create a downward spiral. The main trigger was obviously the bankruptcy and apparent insolvency of major crypto lenders. However, some argue that the ongoing “crypto winter” will benefit the DeFi and cryptocurrency space in the long-term by flushing out weaker players.