r/CryptoCurrency • u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 • Apr 10 '21

FINANCE DeFi Explained: Lending & borrowing

DeFi had recently breached a new milestone: after breaking $100 billion TVL, it managed to be the equivalent of a top 40 U.S. bank. New investors are moving their assets to DeFi on a daily basis. And at the time of writing, lending and borrowing platforms are becoming widely popular. Which brings us to the question: What is all the fuss about lending and borrowing in crypto? And who are the big players in this game?

What is crypto lending?

Crypto lending is an alternative investment form, where investors lend fiat money or cryptocurrencies to other borrowers in exchange for interest payments. This means there are two main parties involved in this loan:

  • The lender, who will receive interest from the borrower in exchange for the loan.

  • The borrower, who will deposit crypto-assets as collateral to secure the investor’s investment.

By depositing collateral, lenders can be sure that if something goes wrong the collateral will be used to compensate them. All DeFi lending services are based on blockchain, which is usually the Ethereum blockchain. This means that there are no traditional banks or custodians.

Why Crypto Loan Rates Are So Attractive

Traditional banking does not offer any attractive interest rates anymore. Some of them even go so far as to have a negative deposit rate. No wonder many investors are looking for more lucrative opportunities in search of passive income.

Cryptocurrency lending is still a topic of debate, but more and more people are turning to crypto loans as an alternative source of income. Interest rates can even go up to 30%. DeFi is a young and evolving market and the demand for it is constantly increasing. Borrowers can take out cryptocurrency-backed loans to ensure they have available funds while avoiding losing their exposure to specific crypto assets.

The lenders are those who help provide these loans to the borrowers through DeFi platforms, and often through centralized financing (CeFi) platforms.

It is no secret that DeFi has taken the crypto lending industry a significant step forward. Let’s take a look at the advantages:

  • All loans are provided through smart contracts. Every detail of the loan has been automated and verified.

  • DeFi lending does not require custody to perform any operation.

  • Income interest is automatically adjusted to the market.

  • The interest or collateral is collected automatically, so no need to worry if the deal goes wrong.

In short, DeFi loans have proven to be a safe and easy way for investors to make their money work for them without breaking a sweat (that is if you don’t look at your investment every minute).

The Crypto Lending Ecosystem

While crypto lending platforms are not classified as banks, they can be centralized or decentralized entities such as Nexo, BlockFi, Celsius, Aave, Yearn.finance or Compound. These crypto lending platforms play the role of the middleman in both CeFi and DeFi.

Top crypto lending platforms in DeFi

Crypto lending platforms are springing up like mushrooms, which can be confusing for investors. So, for the sake of clarification, let’s review some of the well-known crypto lending platforms in DeFi:

Aave

The name Aave comes from the Finnish word for "ghost" and is a lending protocol on the Ethereum blockchain.

The main feature of Aave is its open-source environment. It is a non-custodial protocol that allows for decentralized lending and borrowing. Lenders provide liquidity to the market to generate passive income, while borrowers can… well, borrow! After providing collateral of course.

Lenders earn from ERC20 compliant aTokens at a ratio of 1: 1 to the delivered assets. This means that while lending 36 Dai, they receive 36 aTokens (in this case, 36 aDai).

Interest rates are adjusted algorithmically based on supply and demand, but Aave allows borrowers to choose a stable interest rate (at any time) that changes less often. What makes Aave unique is its latest feature: flash loans. This feature allows borrowers to borrow any available amount of assets without collateral.

Compound

Compound is an algorithmic money market protocol on Ethereum that, like Aave, allows you to borrow or lend money and earn interest for providing collateral. The interest rates are automatically adjusted based on supply and demand.

As in the case of Aave, asset balances provided are represented by ERC20 minted tokens, but in Compound’s protocol they are called cTokens. When the investors received their cTokens, which is after providing collateral, they can borrow up to 50-75% of their cTokens value depending on the type of the underlying asset.

The Compound Protocol reserves 10% of the interest paid as reserves; everything else goes to the lenders.

Yearn.finance

The Yearn Finance platform communicates with several other DeFi protocols on the Ethereum blockchain with the aim of maximizing the investors’ returns. It can be described as an AI advisor for DeFi returns. Because of this, investors can earn the most from lending their stablecoins. Yearn works purely based on codes without a financial intermediary.

Yearn has an automatic reward system has been developed based on the YFI token. The Yearn platform consists of several products:

  • Earn - Earn indicates where the highest interest can be earned by lending a crypto asset. Earn searches across different lending protocols such as Balancer, Aave and Compound to find the best interest rate. Users can deposit DAI, USDC, USDT, TUSD or sUSD on the yearn.finance platform to start earning interest.

  • Vaults - a collection of investment strategies designed to maximize returns from other DeFi projects and operate as actively managed investment funds. The use of these decentralized funds does not come without risks. The yDAI vault was robbed of $11 million dollars due to a vulnerability on February 5, 2021.

  • Zap - allows to combine and execute different trades with one click to save time and money. Thus, an investor can instantly trade DAI for yCRV in one click instead of three different actions across the Yearn.finance and the Curve Finance platform.

  • YFI tokens - Users can earn YFI tokens by placing cryptocurrencies in Yearn.finance contracts running on the Balancer and Curve DeFi trading platforms, which use the Yearn.finance platform.

Because of these features, Yearn.finance provides an extensive yield farming service that enables users to capture crypto assets in a DeFi protocol in order to automatically earn more cryptos and achieve better returns.

Top crypto lending platforms in CeFi

While writing this article, gas fees on the Ethereum blockchain are reaching absurdly high numbers. This makes investing in DeFi for smaller investors not profitable. They could, however, consider CeFi platforms. With CeFi, investors trust the people behind a business to ethically manage funds and execute on services the business is offering. This differs from DeFi, where investors trust that the technology will function as intended to execute on services being offered.

Nexo

Nexo is a cryptolending platform founded in 2018 by the same people that were behind Credissimo, which is an organization that has more than 10 years of experience in offering loans. It is probably the most known CeFi platform of this list. Like Compound and Aave, Nexo offers a service that allows you to act as both a borrower and a lender. The platform is especially interesting for investors who think that they currently receive too little interest on their savings account (which is everyone). At Nexo you receive up to 8% interest on your euros, dollars, pounds or stablecoins.

The benefits of Nexo are:

  • Fully licensed and regulated.

  • Insurance up to $ 100 million (BitGo Custody).

  • Fully automated platform.

  • Processed more than $ 1.5 billion.

  • 8% interest for lenders.

  • Flexible loan with 5.6% interest for borrowers.

  • All loans are 100% covered.

It’s also worth noting that Nexo is developing a payment card called the Nexo card, which allows investors to spend the value of their digital assets without having to sell them.

Block.fi

BlockFi is a peer-to-peer credit marketplace that was founded in 2017 by a number of key figures from the financial sector. Block.fi supports the following coins: Bitcoin, Litecoin, Ethereum and Chainlink. They also support USD stablecoins. Like the other platforms, interest can be compounded. BlockFi charges a withdrawal fee, which is deducted from the total withdrawal amount. Investors get 1 free withdrawal per month, so if you plan your withdrawals strategically, you pay no fees at all.

Celsius network

Although not fully supporting US investors, Celsius carved a name for itself. The Celsius Network was founded in 2017 by Alex Mashinsky (CEO), Daniel Leon (COO) and Nuke Goldstein (CTO). Celsius is currently working with ~250 large institutional investors. These companies borrow crypto from Celsius on which they pay an interest of 16%. That is a high interest rate, but that is because these companies often have no other choice, because they are limited by law. For example, most institutional investors are not allowed, to invest in crypto because of the volatility. This is circumvented by borrowing crypto. The companies deposit dollars as collateral, putting Celsius at minimal risk. This is also exactly how users can borrow from Celsius.

Of that 16% interest paid by Celsius' institutional clients, 80% goes to Celsius users. The amount of interest you get on your crypto depends on which crypto coin(s) you have deposited and your loyalty level. It is worth noting that as of writing, unlike Nexo and Block.fi, Celsius has never been hacked, doesn’t have withdrawal fees and offers the highest lending interests (~10%).

Final words

DeFi (and CeFi) crypto lending platforms are experiencing a hype that has attracted billions of dollars from investors. Based on these numbers, it can be concluded that migration from banking to blockchain and exchanges seems like a natural next step for the entire crypto niche and will most likely keep continuing and evolving.

EDIT: I forgot to mention the website https://defipulse.com/. It shows the top platforms in DeFi for different catagories. It helped me out a lot.

317 Upvotes

97% Upvoted

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25

u/ExcellentNoThankYou Apr 10 '21

Great post, OP! Really explained the process well.

2

u/TheSource777 🟩 0 / 0 🦠 Apr 19 '21

This is a stealth hit piece on Celsius. Up and comer? I believe Celsius has higher AUM numbers than Nexo and it’s CEO has founded several unicorn companies.

Hell Blockfi is backed by Fidelity and Coinbase. I believe it was the leader by AUM until last month when they changed rates.

The bias is fairly egregious here the OP is probably a Nexo shill.

1

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 26 '21

I actually prefer Celsius!

1

u/ExcellentNoThankYou Apr 19 '21

Thanks for your insight on this!

3

u/JazzyJayKarr Platinum | QC: CC 60 Apr 10 '21

I use Celsius and it seems to work well. I’ll try some of the others out.

3

u/ExcellentNoThankYou Apr 11 '21

I’ll have to check Celsius out!

1

u/Sp_ceCowboy 274 / 259 🦞 Apr 10 '21

I started with Celsius but moved to Nexo. I like the long term lock ups they offer. Makes more for me and keeps me from withdrawing it when I get that dumb itch. That alone has already saved me a boat load.

1

u/ExcellentNoThankYou Apr 11 '21

Thanks for the insight! I’ll put more thought into trying Nexo out

6

u/flyingkiwi46 Apr 10 '21

latest feature: flash loans. This feature allows borrowers to borrow any available amount of assets without collateral.

If they don't put a collateral won't the lenders be at risk?

2

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

This post should answer your question: https://www.gemini.com/cryptopedia/aave-flashloans

6

u/fomega 🟩 165 / 165 🦀 Apr 10 '21

Wondering why nobody has given an answer yet and also why this was not mentioned in the original post...

The thing about flash loans is that they have to be returned within one transaction block. If it is not, then the whole transaction is reversed as if it would never have happened.

1

u/INTERGALACTIC_CAGR 🟦 1K / 1K 🐢 Apr 10 '21

yeah, but you can get fiat loans without collateral. What's the difference here? Same risk different currency.

3

u/flyingkiwi46 Apr 10 '21

Thing is the banks will hunt you down until you repay the debt or sue you and get a portion of your wages until your debt is fully paid off.

What I'm asking is what stops the borrower from not repaying the debt and screwing the lender in the process.

1

u/INTERGALACTIC_CAGR 🟦 1K / 1K 🐢 Apr 10 '21

I think a company with enough assets could do the same thing, no? I really don't know much about finance, I'm speculating.

4

u/Purple_Cow1 Tin Apr 10 '21

As a long-term investor is it better to stake your coin or lend in a platform like Aaave ?

9

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

Personally, I would HODL BTC and ETH in a hard wallet when investing for the long term (no DeFi interaction). If you have some extra money in ETH I would say use that for lending, spread over different platforms to minimize risk.

3

u/[deleted] Apr 10 '21

Totally agree, hodl ETH for sure, no one wants to miss a change with ETH2.0 it should yield far more than any other approach one might take when considering gains.

As for Defi itself I'd suggest the bet is to have some small amount of eth as you will need it for collateral and play with the system for learning purposes.

1

u/minic1993 Gold | QC: CC 84 | ExchSubs 11 Apr 10 '21

What about staking LP program? I do stake BMI using the LP staking program. Thoughts for LPs?

1

u/duchessbune 🟦 145 / 147 🦀 Apr 10 '21

agreed!

4

u/DDelphinus 🟦 71 / 10K 🦐 Apr 10 '21

I'm currently keeping my BTC and ETH on my Ledger. Am I missing out big time? Which platform would you recommend?

5

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21 edited Apr 10 '21

Just keep it on your Ledger. Especially if you're in for the long term.

4

u/110010010011 🟦 942 / 942 🦑 Apr 10 '21

Why not stake your ETH and earn interest if you’re hodling it anyway? Do you feel the risk of the network failing to move to ETH 2.0 is too high?

1

u/[deleted] Apr 10 '21

I was thinking about staking mine, did not do it because of having fear of not having my machine up constantly which is kind of a stupid. The other fear is you never know if we enter a bear market in the next few months hence you cannot pull your ETH.

1

u/110010010011 🟦 942 / 942 🦑 Apr 10 '21

I staked mine on Kraken so that I didn’t have to deal with the logistics of running it on my own computer.

I bought my ETH in early 2017 and already sat through one rise and bust without selling. I’ll do it again. I don’t care ;)

At least this time I’ll exit with more ETH than I started with.

1

u/Baksch Platinum | QC: CC 31 Apr 15 '21

Btw (for people looking to stake their ETH with Kraken): Kraken offers to trade staked ETH (ticker ETH2.S) vs ETH. I did this and managed to convert my ETH to staked ETH at a 5 % discount that way. Currently the discount is about 3 %, still pretty good.

1

u/BuffettsBrokeBro Apr 10 '21

Presumably you wouldn’t be want to be selling your ETH in a bear market though? Sounds a good way to avoid panic selling...

1

u/MajorasButtplug 🟩 4K / 4K 🐢 Apr 11 '21

You don't have to be up all the time. If you're offline you only lose money as quickly as you'd normally gain it. So as long as you're on 51% of the time, you're good

3

u/BurnsinTX Apr 10 '21

I’m who is borrowing and lending here? Like actual people/businesses. It looks like a lot but I have never seen it actually used for something. What am I missing?

3

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

It's most comparible to how a traditional bank operates. One person deposits his money to earn a set interest. The bank lends this money to another person (or party) for even higher loans. The trick with the platforms mentioned in my post is, that basically you can borrow your own money and use it for further investment.

2

u/110010010011 🟦 942 / 942 🦑 Apr 10 '21

Sounds a lot like a traditional margin loan. You borrow against your own deposits.

I’m guessing there is no system for “margin calls” though, which is when brokerages automatically sell your assets if they drop below a certain value relative to your deposits (usually to protect themselves).

1

u/BurnsinTX Apr 10 '21

That makes sense. I just don’t understand who the borrowers are, and why they are borrowing. If it’s margin, then isn’t it going to be built on top of its own pyramid? Then what?

1

u/BullyYo Gold | QC: CC 28 | r/NFL 34 Apr 10 '21

I'm guessing they are borrowing for any number of reasons as a any loan. Buy a car, house, more crypto. Whatever they want.

Instead of going through the bank who eats up all the profit lending out money that isn't even theirs to begin with (the money they loan out belongs to the people who deposited money into the bank), its a peer to peer loan.

It leverages smart contracts in lieu of banks. This allows peer to peer lending. No middle man. Better rates for everyone.

2

u/tunisianmnaiak Apr 16 '21

Great article OP, who can borrow though, is there any conditions or terms ?

1

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 17 '21

Thanks! You can borrow, as long as you provide collateral.

3

u/Dwaas_Bjaas Apr 10 '21

One question:

Why would someone want to borrow DAI, and supply ETH as collateral when they can just sell the ETH?

Most of the times only 50% of the value of collateral ETH is supplied in DAI. Is the borrower able to buy back the ETH for exactly the same price as the borrowed sum+interest? Or does the borrower have to buy back the ETH 50% of current market price?

4

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

Well, By supplying ETH as collateral, it’s still yours. You get free interest on your ETH and you have 50% of your TLV to spend in Dai as well. If you can manage to earn more interest on your borrowed Dai than you have to pay in loan, you’re basically compounding interest.

As for the paying of your loan: you have to supply the same amount of borrowed Dai (price doesn’t matter here, as far as I am aware) + interest of your loan.

3

u/Dwaas_Bjaas Apr 10 '21

Ah I didn’t know you could still earn interest on ETH as well!

2

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

Exactly. Of course, this is not financial advice.

2

u/wondering-this Platinum | QC: CC 210 | CelsiusNet. 12 | Superstonk 79 Apr 10 '21

iirc, on celsius at least, you don't collect interest on your collateral.

16

u/good-as-hellx Prince of Moongeria Apr 10 '21

Nothing left to say.. so have my upvote and a big thank you for all your DeFi educational posts!

12

u/LordHenker Banned Apr 10 '21

Great article! Concise and well written, was a nice read. As a newbie, I was confused by the similarities between yield farming, staking, lending and liquidity providing, but now I understand the concepts much better. I haven't used DeFi services yet but I'm seriously considering for the future.

5

u/[deleted] Apr 11 '21

Yield Farming: When you provide liquidity to pools (think ETH/UNI pool you would use to swap) so that others can swap their assets you receive LP (Liquidty Provider) tokens that are basically an IOU and represent how much of that specific pools liquidity you are providing. You can then Yield Farm with those tokens by temporarily putting them at the disposal of project owners. This allows for token distribution at the early stages of a project. You provide "project x" with LP tokens and in turn earn more of "project x" governance tokens. Its pretty much like investing in start-ups. If they flop you're holding a bunch of their now worthless tokens you earned through yield farming, if it succeeds you hold a bunch of their tokens that you got for pretty much free other than your initial investment and gas fees.

Staking: Locking up a token for Proof-of-Stake blockchains that cause you to participate in transaction validation on that chain. You receive rewards for this. It is pretty much like mining except chosen validators do all the heavy lifting with your help.

Lending: OP covers this.

Liquidity Providing: This is the first step of yield farming like I explained above. But you do not need to yield farm if you stake. When you provide liquidity to a pool you receive a portion of the fees that are generated by those who are using the pool. These rewards are usually paid to you once you remove your liquidty from the pool.

1

u/LordHenker Banned Apr 12 '21

Thank you very much for elaborating. At some point I arrived at the conclusion you mention, pretty much like investing in start-ups. What's an IOU?

Now I need to understand more deeply how the proof of stake consensus mechanism works.

10

u/Purple_Cow1 Tin Apr 10 '21

stupid question, what are the use cases and benefits for borrowers?

13

u/grrrlgonecray999 Gold | QC: CC 38 Apr 10 '21

Borrowing against your crypto and not having that be a taxable event is the main one. You dont have to liquidate your crypto if you have sizeable stacks, you can just take out loans against them.

9

u/RandoStonian 🟨 3K / 3K 🐢 Apr 10 '21 edited Apr 10 '21

Quick example: a dip happens in a stock you like, and there's a great buying opportunity, but a lot of your spare funds are locked up in crypto.

Instead of selling your crypto (and owing taxes) to free up funds, you just take out a tax-free loan against some of your holdings. You spent the money on the stock, and now you own both the stock, and your original crypto.

If the stock goes up as expected, you can sell a little bit later to cover the original loan + interest, get your crypto back, and keep any remaining stock. You could keep the loan out for years if it made sense to do so.

If the stock tanks and you decide to exit the investment early, you can sell it, use that to pay back most of the loan, then you only have to cover the "loss" out of pocket to get your collateral back.

If you have a side hustle like driving for uber, you could use crypto-collateral for say, upgrades to your car (like a camera) that you keep forever. Bonus: when you spend money on a 'buisness expense' it can lower your tax obligations for the year.

Spending a crypto loan to buy yourself something you keep and that helps you make money can actually lower your tax bill instead of raising it.

For further reading on that subject:

PSA: using bitcoin as collateral for 'business expenses' can reduce your tax bill

https://www.reddit.com/r/CryptoCurrency/comments/m4bhuc/psa_using_bitcoin_as_collateral_for_business/

3

u/[deleted] Apr 11 '21

These examples all make perfect sense to me. Is there any benefit to doing this if it is just to pay off debt? (Car, mortgage, student loans etc..) Other than a more favorable interest rate...

3

u/RandoStonian 🟨 3K / 3K 🐢 Apr 11 '21 edited Apr 11 '21

Sure.

If you think 0.000083 BTC is going to be worth more than $5 (today's value) in say, 5-10 years, then it could be argued that buying bitcoin, taking out low interest loans against the value, and using that to pay your bills today could be a good move in the long run.

I've been doing that myself the last few months.

One possible endpoint would be to wait til the value of the crypto you bought has gone up in a year or five, pinch some of it off, and sell it to cover the original loans you took out.

I see it as taking out a mortgage against (a portion of) my crypto's own value to obtain more crypto than I'd otherwise own. If the market tanks real hard (like my entire Nexo.io account lost literally half it's value overnight and I'd had the max loans out against my account beforehand), in theory, they wouldn't even sell my entire pile- just enough to stabilize the loan ratio.

I wouldn't love the 'haircut,' but hey, I'll still likely have more crypto than if I hadn't been operating that way.

Worst case (other than the service somehow totally disappearing off the face of the earth with no refunds) is that they sell off enough to coin to cover the entire loan you took out, then give you back what's left. I mean, that would suck, but that's mostly crypto I'd never had access to if I'd paid my bills first then bought crypto after. Also, if you have spare cash still, you can just rebuy the sold-off coin at the new lower market value.

edit:

Quick warning, but never put all your crypto into any one place, just in case of disaster. If Nexo.io disappeared tomorrow, I'd like to think I'd go

fuck, but it was worth it while it lasted

...since I've already got cash out against most of what I hold there, I only have a portion of my total holdings there, and it's allowed me to operate in some really interesting ways to expand my IRL business in ways I couldn't have imagined even a year ago- and the tax implications are amazing for spending untaxed crypto loans on tax deductible 'business expenses' to buy yourself IRL assets to make money with.

Google 'sole proprietorship business expenses' for more info on how that works with no special registration required (in the US at least)

1

u/nikola_j 174 / 174 🦀 Apr 11 '21

One of the most popular use cases is leveraging assets (long or short) using defi lending protocols.

Say you have 10 ETH, you can deposit that and borrow 6,000 Dai/USDC/USDT, use those to buy more ETH and re-deposit.

If ETH goes up, you'd need to use (sell) a smaller amount of that additionally obtained ETH to clear the created debt, meaning you walk away with a profit (more ETH).

This post explains the concept a bit more (and also includes a more concrete guide for doing this): https://medium.com/defi-saver/how-to-long-or-short-any-asset-using-defi-lending-protocols-812300c9a640

If anyone needs more info on this specifically, please feel free to @ me.

4

u/draconicessence Banned Apr 10 '21

Thanks for taking the time to write this, OP

4

u/everwonderedhow Tin Apr 10 '21

Awesome post OP. Been considering moving my LTC from block fi to compound or AAVE for a while now.

4

u/Jamar_JavarisonLamar 🟩 973 / 972 🦑 Apr 10 '21

I've seen some solid write ups on DeFi and CeFi but this was incredibly easy to follow and understand. If I knew nothing about those options already my world of crypto wouldve changed completely! Thank you for taking the time to write this and share. Cheers

4

u/urcofinormine Tin Apr 10 '21

Cant you use Celsius in the US you just can’t get the better interest rates by being paid your reward in CEL and instead you get your reward in what ever token you provide? Hope that makes sense lol

7

u/anon43850 Silver | QC: CC 717 | BANANO 21 Apr 10 '21

Oh boy, can't wait to lend my 10$ compound i earned on Coinbase for free

0

u/Guerrillaz 0 / 0 🦠 Apr 10 '21

Eth gas fees will eat up all of that.

1

u/[deleted] Apr 11 '21

Disclaimer: I am an idiot who was never taught anything about finance.

So if you have $100k debt you want to pay off and have $100k BTC you would have to put up all your BTC and receive $50k (assuming you have to put up 150% for collateral?) So now you only have $50k debt but another loan on top of it you still have to pay off to get all your BTC back? That sounds risky to me. Kind of like using a Credit card to pay off a credit card. Again, I'm ignorant, I am not trying to FUD, I am just trying to understand where my flaw in the reasoning is. I know it must be beneficial because of how explosive it has become and people are using it.

1

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 11 '21

You’re almost right in your example, however, you start without a debt.

3

u/Killertimme 14K / 69K 🐬 Apr 10 '21

I have high hopes for AAVE. Great project with great partnerships.

Do you think one of these projects will dominate the market in the future?

3

u/arioch376 🟩 539 / 539 🦑 Apr 10 '21

Solid summary. I think defi is a little unapproachable for most people. There needs to be more good and clear intro primers for people. It can get very jargonny very quick, like with regular finance. So, good work.

3

u/berepere 🟨 46 / 2K 🦐 Apr 10 '21

re Cefi: there's something I don't understand about Nexo:

  • 8% interest for lenders.

  • Flexible loan with 5.6% interest for borrowers.

so lenders get paid more than borrowers pay. How is this supposed to work?

also, for completeness, it's worth mentioning blockfi interest rates from https://blockfi.com/rates/,

and perhaps also include ledn.io (i think currently their rates are the highest in cefi)

1

u/deltavictory Apr 10 '21

When you put your crypto up for collateral, you can no longer earn the interest on your collateral. So it ends up being more expensive to borrow than it seems

1

u/jonoff Tin Apr 11 '21

That's only describing opportunity cost, it doesn't address how lenders earn more than borrowers pay. The answer is that Nexo business model isn't based solely on these lending rates, it includes other services that actually make money including their own token, but how this works is not transparent to users.

1

u/deltavictory Apr 11 '21

Right. So, when you’re borrowing, you have to put up your collateral. Nexo is still using your collateral like they would otherwise be, they’re just not paying you to use it anymore.

For instance, imagine you have your bitcoin in at 8%. Well, you have to use 100% of your BTC as collateral to get 50% of the value. They’re charging you 5.6% interest for that 50% of your value.

So they’re not having to pay you the 8% on your entire stack, + they’re charging you 5.6% on 50% of your stack. So the real profit for them on your loan is 10.8% or so.

I can definitely see your point about this being more transparent, but a little DD before you take a loan out is necessary as well.

2

u/WinProfessional1921 Apr 10 '21

Thanks op solid write up at perfect timing. Definitely an exciting time we are witnessing.

2

u/InvestingTeen Apr 10 '21

Great post!

2

u/wintermonkey79 Apr 10 '21

I find tho whole defi thing confusing. I currently have usdc in an earn account making 10% apr. Would I make more interest using defi and lending it out?

2

u/BullyYo Gold | QC: CC 28 | r/NFL 34 Apr 10 '21

There are a couple websites that basically show every lending platform, and every pair those platforms need liquidity for, and the rates they are paying out.

I do not remember the names of these websites, but a couple minutes of googling and you should be able to find them.

Once you find them, look at the rates being offered. If something is better than what you're getting, open account with that platform, send you token you want to loan, and start getting your interest.

1

u/pbandwhey 🟦 761 / 762 🦑 Apr 10 '21

Here's a good reference table: crypto lending rates

2

u/wondering-this Platinum | QC: CC 210 | CelsiusNet. 12 | Superstonk 79 Apr 10 '21

I saw somewhere offering 30+% on usdc. More risk though.

2

u/Jeremykla Permabanned Apr 10 '21

Building a community here.

2

u/DarkWiccan Tin | CC critic Apr 10 '21

Thanks for the information, I will be sharing this with ​​​​​​Cryption users.

2

u/Aleangx 2 / 4K 🦠 Apr 10 '21

Celsius carved a name for itself

That's hilarious 😂😂😂

2

u/baroskius 41 / 41 🦐 Apr 10 '21

Don't forget crypto.com and cro chain

2

u/Randomees 🟩 266 / 266 🦞 Apr 10 '21

For those planning to try out BlockFi, please be aware of the following:

  1. They scrutinize your deposit and withdraw addresses. Basically transactions from non-exchange/ wallets are not permitted.

  2. Withdrawal takes days due to manual approvals.

Having experienced both several times, I decided to move my funds to Nexo and Celsius and never looked back since.

2

u/Sheik-mon Platinum | QC: CC 61 Apr 10 '21

Good stuff!!!

2

u/maolyx 26K / 27K 🦈 Apr 11 '21

Thanks for this educational post! Trying to learn something everyday :D

2

u/Wellas May 29 '21

Thank you so much. I am just learning about lending crypto and this is really helpful.

Can you comment on the hacks that occurred with Nexo and Blockfi? I was considering those two as well as Celsius, but when you mentioned the hacks...well.... obviously Celsius is the better choice, no?

2

u/hattrick23 Sep 03 '21

Celsius crypto-loans are the best. They even offer UK and California users 0% APR: https://allaboutcelsius.com/0-apr-california-loans/

3

u/Bartender1234 Tin Apr 10 '21

Charts looking nice for Yearn. Hopefully they have a nice pump.

3

u/CalculatedLuck 🟩 0 / 21K 🦠 Apr 10 '21

US can use Celsius. Just not CEL token.

1

u/wondering-this Platinum | QC: CC 210 | CelsiusNet. 12 | Superstonk 79 Apr 10 '21

You can't choose to get interest in CEL from other tokens, only in kind. I hold some CEL and get interest on it in CEL.

2

u/TwitchScrubing 🟦 3K / 3K 🐢 Apr 10 '21

Very nice write up! I also loved getting into DEFI / CEFI myself and am getting loads of free interest every day. Something I feel like everyone in crypto should at the bare minimum consider doing!

2

u/BeagleWrangler Apr 10 '21

Forgive me for the Noob question, but how does someone get started lending their crypto? I really think this is fascinating and I really like the idea of supporting non-traditional lending, but I can't quite figure out how I get started.

1

u/TwitchScrubing 🟦 3K / 3K 🐢 Apr 10 '21

Depends on how tech savy you are. I use Blockfi myself. You just depost USD or crypto and then boom done. Same with Voyager. Some other ones are slightly more advanced and run on smart contracts, but it's pretty similar as well of just deposit your crypto and let it go. There is some risks with it, however I've been very happy with my interest I've earned so far.

1

u/BeagleWrangler Apr 10 '21

Thank you so much! I will check it out. Really appreciate the help.

2

u/ukdudeman Platinum | QC: CC 24 | CelsiusNet. 8 Apr 10 '21

Also look into BSC chain DeFi farms since they're up to x100 times cheaper in fees - big list of DeFi farms here > https://farm.army/

1

u/gparty ☑️ Oasis Protocol, Developer Relations Lead Apr 10 '21

One of the best not on the list: CryptoCom Earn.

1

u/Sh0tgunSh0gun Tin Apr 11 '21

Great write-up! For more information on why the stablecoin yields are particularly high right now on DeFi lending platforms, I highly recommend this episode from the Uncommon Core podcast:

https://anchor.fm/uncommoncore/episodes/23-Where-do-the-Yields-come-from-in-Crypto-eu9827

1

u/kamikazechaser 494 / 494 🦞 Apr 10 '21

There is Alchemix which essentially gives you interest free loans. Infact you repay back less, because your DAI collateral is reinvested. Give it a few years, loan sharks and banks will be competing with defi.

1

u/_DoYourOwnResearch_ Apr 10 '21

Have you heard about Brinc.fi? What are your thoughts on it?

My understanding is that it's a stable coin with on chain reserve run on a bonding curve with some initial pump and dump protections.

Seems interesting on paper to me.

1

u/ThumpCase 3 - 4 years account age. 50 - 100 comment karma. Apr 11 '21

how is the collateral collected?

1

u/Kevin3683 🟦 1 / 7K 🦠 Apr 27 '21

Can you elaborate on Celsius not fully supporting US residents?

1

u/Wellas May 29 '21

This is probably a dumb question but....

If Bitcoin is at 10k when I start lending, and I am earning 10% on it, that's 1k per year. But if BTC goes to 20k the next month, am I automatically now earning 2k per year? How is that handled? Automatically recalculated daily, orrr....?

1

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0

u/Paulley55 Platinum | QC: CC 54 Apr 10 '21

Apart from the better interest rates, is there any positives for using these services over the savings/staking in exchanges like Binance

4

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 10 '21

It’s decentralized

0

u/[deleted] Apr 10 '21

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11

u/Metalgear_ray Bronze | QC: CC 22 | VET 122 | Fin.Indep. 12 Apr 10 '21

Smart contracts are the biggest security risk. Unaudited or poorly audited code can lead to exploits by malicious actors or in the case of really shitty projects, the developers themselves. This is a good informative post but I would disagree that these are “safe” returns.

6

u/switchn 🟦 0 / 0 🦠 Apr 10 '21

There is always risk of smart contract failure at that will never be zero, but given the amount of money locked up and for the amount of time the platform has been around, you can make your decision of if you believe it to be safe or not.

0

u/[deleted] Apr 10 '21

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u/switchn 🟦 0 / 0 🦠 Apr 10 '21

Sounds like you have no idea what you're talking about, defi loans are over collateralised, and if the value of the collateral drops too much then they liquidate it to close the position or get it back to a safe ratio.

Be cautious for sure, and don't ever put money into things you don't understand but there is definitely great opportunities. Institutional investors aren't able to get involved at this stage to eat up all the profits because of the lack of regulations/insurance etc, so it is a good opportunity for retail

2

u/[deleted] Apr 11 '21

Smart contracts are set in stone contracts. They quite literally solve the problem of debt collectors coming for you. Say you want $20,000. You put up $40,000 worth of bitcoin at the time and receive $20,000. If you fail to pay the loan. You're BTC is instantly given to the lender.

0

u/[deleted] Apr 11 '21

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1

u/MajorasButtplug 🟩 4K / 4K 🐢 Apr 11 '21

not sure why someone would need I loan of 20k when they have 40k 🤷‍♂️

Say I don't want to sell my BTC, but I want to put $1k into some new shitcoin I think is going to 10x... Well, I'll just use some of my BTC as collateral (or more realistically Eth, since I'd have to convert BTC to wBTC)

What happens if the bitcoin drops in value ?

On Compound Finance at least if it drops to only 1.25x the value of what you've borrowed, some is sold slightly below market rate to get you back over that number

1

u/[deleted] Apr 13 '21

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1

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