Top 5 DeFi Lending Platforms to Watch Out in 2022

27 Aug 2021 updated
10 min read

With a considerable portion of the global population still remaining unbanked or underbanked, the new avenues of access to capital via crypto have caused crypto lending to boom. Thus, the owners of crypto assets now lend their belongings to other users for an interest fee, which is a perfect opportunity for them to earn a passive income without involving in risky trading operations. Blockchain-based DeFi lending is thus on the rise because of easier access to capital, less AML/KYC hassle, and great diversity of available DeFi platforms to lend and borrow money at. 

defi statistics

In this article, the 4IRE team reveals the basics of crypto lending to help you understand whether this type of investment is your cup of tea. We’ll examine the mechanics of crypto lending, the pros and cons of this kind of crypto asset management, and the top crypto lending platforms to use today. 

Types of DeFi Platforms 

To date, DeFi platforms have become the primary source of decentralized, flexible financial solutions in many spheres. Numerous projects have emerged to cover user needs in terms of lending, insurance, asset management, etc. The most popular lending platforms to which users flock today include: 

  • Aave
  • bZx
  • BlockFi
  • Compound 
  • Ledn 
  • Nexo
  • Curve, and the like. 

Blockchain also offers handy solutions in terms of decentralized asset exchange (DEX). The most popular DEX project today include: 

  • 0x Protocol 
  • 1inch 
  • Bancor 
  • dYdX
  • Kyber Network 
  • OpenSea, and many more. 

DeFi has also enabled transactions of tokenized derivatives in the blockchain universe. The most famous DeFi projects in the derivatives sector are: 

  • Augur
  • dYdX
  • Erasure 
  • Opium 
  • Opyn 
  • Synthetix 
  • UMA, and others. 

Another popular application of DeFi is crypto asset management. The most popular projects specializing in asset tracking and management are: 

  • Balancer 
  • InstaDApp
  • Sablier 
  • Set Protocol
  • Zerion 
  • Zapper, etc. 

popular defi platforms

DeFi has also found an application in the insurance sector, with decentralized insurance protocols used to pool blocked crypto funds in insurance reserves and guaranteeing the issuance of insurance coverage under the conditions provided in a smart contract. The key projects of significance in this sphere are:  

  • Nexus Mutual 
  • Opyn 
  • Opium 

Thus, as you can see, there are many ways to earn interest on your crypto and back up essential life activities with its help. With so many types of DeFi applications, DeFi lending is doomed to grow and expand, becoming widespread across many more blockchain platforms. 

What Is Crypto Lending?

The core principle of decentralized finance (DeFi) is the reliance on the blockchain, a decentralized public platform where all transactions occur under the guidance of the system’s nodes, or peer participants. Thus, with DeFi lending and borrowing, the crypto loans are also operated based on the blockchain principles. However, experts caution against equaling crypto loans to loans in traditional finance, as the algorithm of the latter is quite different. 

defi lending

Lenders who want to get interest from their crypto belongings provide those assets to a DeFi platform blocked on their accounts. The platform typically uses these loans to guarantee better liquidity in exchange and avoid greater slippages in the transactions, as with low liquidity pools, large-volume transactions are likely to move the prices upward and downward significantly. Thus, the lenders provide their funds to the liquidity pool and receive a fixed or dynamically changing commission for their funds’ use every day. 

While lending seems to look similar to fiat currency lending, the situation with borrowing is different. Users don’t actually borrow crypto funds from the platform where they transact their crypto assets. On the contrary, they borrow fiat money and lock their crypto coins and tokens as collateral in that loan, thus getting additional funds for transactions without selling their coins. The idea behind such borrowing is that users don’t want to sell their crypto assets, hoping for their rapid appreciation in the near future, but at the same time receive liquid money for additional transactions while leaving their crypto assets in a lien. 

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Risks Involved in Crypto Lending 

Though crypto loans may seem easy and affordable, it’s recommended to study the subject in depth before taking such a loan. The most significant downside of crypto is the coins’ volatility, which may also dynamically affect your loan terms and interest rates. So, when taking a crypto loan, think of the following risks involved: 

  • Technical risks associated with the blockchain platform’s functioning. 
  • Crypto loan issuers are not obliged to meet the requirements of minimal liquidity provision, so if a platform has issued too many loans and its clients don’t return the loans on time, it may fail to return the collateral to decent borrowers. 
  • Crypto trading platforms often forcefully close the borrower’s positions if the value of their collateral suddenly drops. Thus, crypto borrowing is always a risk as your collateral can reduce in value because of some unexpected market event, causing you to either increase the collateral or to return the loan prematurely. 

How to Find the Best DeFi Lending Platform? 

So, given the diversity of DeFi offerings on the online market today, the question of choosing the best one gains additional significance. How can you pick the best platform responding to all your needs and having all the features you looked for? Let’s consider the critical aspects of DeFi platforms’ quality that you should consider before signing up. 

defi benefits

1. Global Access 

The platform you’re choosing should be globally accessible and popular among users across the world. If you’re traveling or fail to get to your account, you need to know that the platform won’t disappear on the other day, having numerous clients in different states. 

2. TVL 

The Total Value Locked (TVL) indicator determines the liquidity pool of a specific platform, signaling whether you can exchange and trade your tokens quickly and easily or not. The higher the TVL, the better.  

3. Open-Source Blockchain 

The blockchain on which the DeFi lending resource operates should be open-source, which means that any user should have the ability to analyze and audit agreements concluded there. It’s a vital transparency issue. 

4. Simple Registration 

Needless to say, you should get to the platform easily, without lengthy forms and tedious AML/KYC forms to complete. 

5. Autonomous Functioning of DeFi Loans 

One of the basic security measures against forced loan liquidation is the standalone nature of DdeFi loans. This means that they are written in the smart contracts and regulated automatically. The platform’s owners and developers cannot interfere with smart contracts and change the loans’ terms. 

Top 5 Best Cryptocurrency Lending Platforms 

Now let’s proceed to the top five DeFi lending platforms that enjoy popularity among users worldwide today. 

Aave

With the liquidity protocol currently exceeding $23 billion, Aave seems to be the best platform for lending and borrowing. It was launched in 2017 in Switzerland, and for the years of its functioning, it has distributed over one billion LEND, the native cryptocurrency of Aave. Deposits to the lending pool are made in aTokens – the ones on which the users can get interest. Holders of the native AAVE cryptocurrency can also get numerous benefits in the use of their funds on the platform, such as conducting transactions with zero fees, using AAVE as collateral with discounts, and getting loans in AAVE without commissions. Aave also offers flash loans at a minimal fee, 0.09%, which should be taken and returned within the same block’s creation period (around 10 minutes). 

Compound

This platform was launched in 2018 and quickly became famous as it functions on the Ethereum network and offers state-of-the-art security and usability. It currently works as an open-source marketplace, with flexible borrowing options in DAI, ETH, USDC, and other currencies. COMP is the platform’s native cryptocurrency, which gives users numerous perks and reduced commissions when transacting with it. 

Celsius

Launched in 2017 and based in the USA, the Celsius DeFi platform offers many unique features, such as loans starting from 1% and an opportunity to lend 40+ cryptocurrencies for a decent commission. Besides, it’s an excellent platform for lenders wishing to maximize their earnings as it claims to share up to 80% of its earnings and guarantees up to 21.49% APY to users. The platform is also highly user-friendly, with no minimum balance requirements and convenient withdrawal conditions. Besides, loans are granted on favorable terms, with a 1% APR charged for the borrowed money. 

Yield

Yield has quickly gained momentum in the DeFi market because it’s a mobile-friendly, handy solution that can be easily operated even on the go. The platform offers 12% APY for BTC loans, 16% APY for loans in ETH, and up to 20% APY for loans in USDC and USDT. Besides, the lenders may enjoy additional flexibility as their lent funds are never blocked. Thus, they can perform trading operations while at the same time receiving passive income from their assets. 

Uniswap

Also operating on Ethereum blockchain and working since 2018, Uniswap has quickly gained the fame of a highly convenient and user-friendly DeFi lending resource. It is a fully decentralized exchange (DEX), meaning that users hold exclusive control of their funds and enjoy reduced fees compared to centralized exchange platforms. Transactions are performed with the help of Exchange and Factory smart contracts, with the former responsible for exchanges and the latter used for adding brand new tokens to the platform. 

5 best defi lending platforms

What Is the Best DeFi Lending Platform in 2021? 

Based on the user reviews online, the best DeFi lending platform among those available today is MakerDAO. There are many reasons to love this resource. First, it has a unique ecosystem functioning based on the platform’s native coin, DAI. Second, it provides safe lending and borrowing options for users with zero counterparty risks. Third, it has a Collateralized Debt Position (CDP) creation feature, which means blocking the users’ ETH in exchange for the platform’s native DAI. 

FAQ 

What is a lending platform? 

It is a DeFi platform that allows users to become lenders and borrowers in the decentralized financial environment. 

How does DeFi lending work, and what type of loan can I get? 

People with excess crypto assets can lend them to the platform in return for a commission. At the same time, borrowers take some funds (fiat money or crypto) in exchange for their crypto assets, with the latter functioning as their collateral.

What are the features of the best crypto lending platform? 

The top-rated crypto lending platforms should be easy to access and register, offer standalone DeFi contracts, and be based on open-source blockchain. 

Can institutions use DeFi platforms? 

Similar to the traditional stock market, both individuals and institutions can partake in the crypto trading activities. In May 2021, the DeFi lending platform Aave revealed that it had launched a private, permissioned pool for institutional investors. Thus, institutional lending and borrowing have also become a reality in the DeFi world. 

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