Dapp Lending System

Crypto dapp lending system is similar to the concept of traditional lending. The only difference here is that you will lend different cryptocurrencies to the borrowers instead of paper currency. When investors lend their crypto to borrowers on a decentralized platform, they get interest payments in return. These payments are also termed “crypto dividends.” Several platforms allow the users to not only lend cryptocurrencies but also accept stablecoins.

Let us understand this better with an example. Suppose you are holding five bitcoins. Now, you can lend these bitcoins on a crypto dapp lending platform to gain passive income. You only have to lend the crypto and receive weekly or monthly interest in return.

The interest rates will depend on the platform you are using. It can be 3% to 7%, or in some cases, it can even go up to as high as 15-17%. Crypto lending is also helpful because borrowers can stake their crypto assets as a guarantee for loan repayments. If the borrower cannot repay the loan, the investors can sell those crypto assets and recover their loss.

There are several factors that you need to consider while selecting any dapp lending system. Some of the key factors to consider are:

Deposit limit

See to it if there is any minimum deposit amount requirement or not.

Platform risks

Go through the track record of the platform for better understanding.

Fees

Compare the costs of different platforms for different coins.

Interest rates

Choose a platform based on the interest rate of that particular coin on any specific platform.

Lending duration

Check if it is fixed or not.

Collateral

Compare the amount of collateral you need to get a specific loan amount among different platforms.

Custodial Crypto (CeFi) Loans

When it comes to Centralized Finance (CeFi) loans, a centralized authority takes control of collateral. CeFi loans are custodial ones, where the trader has no access to the collateralized assets because the lender has access to the private keys of the collateralized assets.

If you compare custodial crypto loans with traditional loans, you will still notice that they are affordable and easily accessible compared to traditional ones. The only downside here is that there would be a central authority to determine all the loan terms. Currently, more than 80% of the crypto loans are custodial, but with the advancement of decentralized platforms, this ratio is drastically changing.

Dapp lending System aim to offer crypto loans in a trustless manner.

Non-custodial (DeFi) Crypto Loans

There is no central authority to control the terms of Decentralized Finance (DeFi) loans, which are non-custodial. All the terms are under the control of smart contracts. If a trader is taking up a Dapp Lending System, they would be able to have control of the private key to their assets unless they are defaulting on their crypto loan.

You cannot get a loan for any fiat currency on DeFi platforms. You can only receive loans in different cryptocurrencies or even get a stablecoin loan that can be exchanged for cash. The interest rates on DeFi loans are high as compared to the custodial crypto loans.

All the protocols are accessible to anyone as they are put up on the blockchain, where everything is transparent. There is no need to go through any verification process on DeFi platforms, and even the interest rates will be less than the CeFi platforms.

There is no need to worry even if you are on the lender’s side on a decentralized platform. Smart contracts make sure that the loan is repaid.

Whether you are thinking about taking up a custodial or non-custodial crypto lending system, there are certain things that you need to take care of. You should be aware of certain risks that are involved in crypto loans before you take one.