Crypto enthusiasts will argue that cryptocurrency is the greatest asset class of all time. Just look at bitcoin.
When bitcoin first came out, it was given away for free. Eventually, it started trading for a few cents, and then a few dollars. In November 2021, the value of each bitcoin peaked at $68,000.
That’s an insane amount of gains in 11 short years since it launched. And while buying and holding is the best investing strategy, you can also utilize additional strategies like lending crypto.
Countless people are borrowing crypto on a daily basis thanks to the ease of getting a loan and favorable terms. And those who provide the liquidity for those loans can earn a nice yield on their crypto while holding and capturing price appreciation.
So how does it all work? Keep reading below to learn how to become an advanced cryptocurrency investor.
Crypto Earning Opportunities
When it comes to crypto investing, newcomers will simply buy and hold cryptocurrency. They wait until the price jumps and either sell it for a profit or continue holding, waiting until the price soars to the moon.
But that’s a pretty passive way to grow your wealth. And when it comes to traditional investments like stocks, that’s all you can do.
But crypto is much more flexible. There are actually numerous ways you can earn money while you hold crypto. So you can multiply your wealth-building potential.
Crypto lending is one such opportunity. You supply your crypto to lending pools. Borrowers take out collateralized loans, pay interest on the loan, and that interest gets paid out to lenders.
Crypto holders can also stake their funds. Staking is the process of locking up some or all of your crypto in a staking pool, where the funds are used to power validator nodes. These keep the blockchain network secure and earn transaction fees incurred by users.
Becoming a liquidity provider (LP) and yield farming crypto are also advanced strategies for generating yield.
How Does Lending Crypto Work?
Crypto lending is safer than most people realize. You aren’t acting as a traditional lender, providing direct loans to individuals.
Rather, you add your crypto of choice to a lending pool. Borrowers then put up collateral, in the form of crypto, in order to take out loans. They usually need to overcollateralize their loans.
That means they might need to provide $1,000 in crypto in order to take out a loan of $750 in crypto.
That way, if they default on their loan, lenders are safe, since they capture the collateral.
Lenders are paid out interest rates for as long as they keep their funds in the pool. In most cases, you can deposit and withdraw funds at any time.
Getting Started With Crypto Lending
There are centralized and decentralized platforms for lending crypto. Centralized platforms are more expensive to use but less risky.
Decentralized platforms usually offer higher interest rates, and lower fees, but fewer protections.
In any case, AAVE is one of the best networks for lending crypto. It’s built on the Ethereum network, making AAVE options for lending plentiful. Check the AAVE price here, as you’ll need this token to interact with the platform.
The Best Asset Class for Earning Potential
Very few assets allow you multiple ways to earn income off your assets while also capturing price appreciation. Lending crypto is just one example of how cryptocurrency is shaking up the finance industry and making it possible for anyone to control their financial destiny.
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