UNDERSTANDING THE PRINCIPLES INVOLVED IN CRYPTO LENDING

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Cryptocurrencys has been becoming a dominant force in the financial world since it possess all the qualities of money.many has gained financial upliftment by buying,holding and selling cryptos which in the process of doing this,they make some profits from it.just like fiat cryptos can be use in the day to day transactions,many don't really know that they can also use their cryptos to get loans from crypto organizations just like the same way banks give loans.so in this content I will be discussing what crypto lending is and how it works.

Crypto lending is when holders of cryptos decide to lend it to their borrowers.so in this case the lender of the crypto stand the chance to make profit from it's borrowed cryptos,just similar to the way the bank give loans to their customers.crypto lending is usually done on decentralized finance.mostly by crypto exchange organizations. lending normally involves three parties which is the borrower ,the lender and the decentralized finance.so I see pn getting a crypto loan,the borrower would have to deposit certain amount on the decentralized finance which serves as a collateral should incase the borrower is pollen able to pay the loan then the deposited cryptos can be used in the payment of the loan.so after depositing,the borrower can then go ahead to request loan from the crypto platform that is offering the loan.so the lender automatically start earning interest from the crypto they loaned untill the borrower finish paying up the borrowed crypto loan.usually the collateral of the borrower is more than the amount is he borrowed.the expected yield of any crypto loan is withing the range of 3-15% per annum.so the coin that is also been used also matters alot as it determines the rate of your of information on the coin which is usually on the decentralized exchange platform.

Basically there are two types of crypto loans,the flash loan and collaterized loan.flash loan is the type of crypto loan where you can borrow crypto for a short time with out collateral.so in this case liquidity has to be returned within one block of transaction.alot of technicality is usually involved in carrying out flash loans which is a better suits for developers.collaterized loan is the most common and rampant.they are always available for users at any time of the day,unlike the flash loans collaterized loans requires collateral and at the same time it gives its users the opportunity to borrow funds for a longer duration.so the amount of loan a borrower gets is usually half of what they have deposited as collateral.

Crypto lending and borrowing has advantages attached to it.one major advantage is that it is very fast and it is also very simple to carry out and access.so once one is able to provide his collateral you can be rest assured that you will be borrowed funds within short period of time.secondly is that it brings about high yield for it lenders.it almost the same thing with the traditional banking system but the difference is that it is more yielding than the traditional banking system,another advantage is that the fee involved is always very low when compared to the traditional banking system.



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