Those who hold cryptocurrencies in a virtual wallet can also lend them, as higher interest rates loom. On US lending platform Celsius, deposits in the cryptocurrency Ether are currently being paid 3.52% annually. The US provider, Leiden, in turn, promises a 6.25% return on bitcoin on savings in its crypto-based account. The BlockFi platform even offers a return of 10% if you choose the highly volatile cryptocurrency Avalanche.
Due to the decentralized blockchain technology, different actors in the financial system can directly interact with each other, eliminating the need for a bank or financial service provider to act as an intermediary. At least that’s the theory. The applications resulting from the field of decentralized finance (DeFi) promise to deal with the lending or exchange of cryptocurrency in a decentralized manner. However, in order to make sure that these financial services are possible in the first place, someone needs to take the often risky counter-position.
Lending via the blockchain
Providing liquidity for transactions in cryptocurrencies is known as liquidity cultivation. On the other hand, if funds are made available to enable lending, this is called yield farming. In both cases, interest rates on deposits that significantly exceed the yield on bonds or hard currency savings are promised.
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