Crypto Lending vs. Staking: Everything You Need to Know

Jun 2, 2023
Crypto lending vs. staking

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Many traders live busy lives, and they’re not able to constantly watch the market or make trades quickly. There are several creative ways traders can invest their crypto beyond simple transactions. This includes strategies like staking and lending your crypto, which can garner passive income. 

While staking crypto has taken centre stage as the newest way for crypto holders to use their crypto, crypto lending also has numerous benefits to consider. 

Want to learn which one is right for you? This article will compare crypto lending vs. staking and help you decide.

Crypto Lending vs. Staking: Know the difference

Crypto lending definition

Crypto lending consists of borrowing extra funds by depositing collateral. Similar to personal loans, the crypto loans traders receive are useful for multiple purposes  - which we go into detail below.  

Unlike traditional loans, interest rates vary on different platforms, usually between 5% to 15%.

Loan duration and other terms also vary - which makes them much more convenient. Traders can find loans at lower interest rates that last days to months. 

To keep the loan viable, traders must make monthly payments to their lenders. If they don’t default or the collateral doesn’t lose significant value, traders receive their collateral back in full at the end of the term.

Crypto staking definition

In crypto staking, traders pledge crypto to a blockchain that uses the proof-of-stake (PoS) model. Staking your crypto is how new transactions are added to the blockchain protocol. In PoS blockchains like Ethereum, traders who stake large amounts are chosen as validators. Validators are tasked with the important job of validating new transactions. 

Learn more about staking crypto RIGHT HERE

The more crypto you stake, the higher your odds are of being chosen and of receiving staking rewards. When a new block is added to the chain, a new cryptocurrency is minted and given to its validator. Though you can un-stake your crypto, as it still belongs to you, most crypto must stay pledged for a minimum duration. 

How do you stake or lend crypto?

How to stake crypto

1. Buy crypto

To get started in staking, choose and buy crypto that uses the PoS system. Ethereum, Cardano, and Solana are three widely-used PoS blockchains.

2. Choose your method of staking

You can either stake your crypto on the blockchain through the exchange or move it to your blockchain wallet. Your blockchain wallet will securely hold your crypto. They’re considered the safest option since you’re fully in charge of the wallet and its contents. You can stake crypto using your wallet address on your exchange account. Choose the type and amount you want to deposit. 

3. Join a staking pool with other traders

Finally, you can join a staking pool, where traders combine their stakes to create a bigger impact on the blockchain. By doing so, traders who participate in staking pools are more likely to receive more significant rewards. You may have to pay a small fee of 2% to 5% of your rewards to join. Ensure your staking pool is reliably online and large enough to stay stable while not becoming oversaturated.

PRO TIP! You can earn interest on your crypto with YouHodler. No complicated steps are required. Simply deposit crypto to your YouHodler wallet and start earning interest immediately!

How to get a crypto loan

1. Choose a platform - like YouHodler - and create an account

Receiving a crypto loan has a standard process, although some steps might vary on different platforms. The biggest differences are between centralized finance (CeFi) and decentralized finance (DeFi) loans. Centralized finance platforms operate as regulated institutions, and use more traditional financial instruments. While they’re safer, they also require users to verify their identity. 

DeFi platforms use decentralized blockchain technology like smart contracts, so users can stay anonymous. While they are fast and allow users more privacy, they also come with higher interest rates and more risk. 

Suggested reading: CeFi vs. DeFi - Know the Difference

2. Verify your identity and crypto holdings

YouHodler has a quick and painless KYC process. It takes just a few minutes with 24/7 customer support ready to help if needed. 

3. Deposit crypto to use as collateral

After buying your desired crypto, deposit it into your account for use. Keep in mind how much collateral you’ll require for your needed loan. 

4. Choose your loan terms

This includes your loan’s duration, LTV (loan-to-value) ratio, fee, and more. 

5. Submit and receive your loan

That’s it! Check your wallet and you’ll see your loan there. To get your collateral back, simply pay the loan in full before the end of the due date. 

Staking vs. lending: understanding the risks

Just like with any other trading strategy, both staking and lending crypto comes with inherent risks. 

Crypto staking risks

  • Volatility: If you stake crypto and its prices drop significantly, the value you lose can outweigh whatever interest you earned on it.

  • Minimum staking requirements: Staking requires you to deposit your crypto for a minimum period. If you suddenly need to use your crypto during that time, you won’t have access to it.

  • Cannot withdraw immediately: Even after requesting to un-stake your crypto, you’ll have to wait for the un-staking period to pass. This is usually around seven days.

  • Technical risks: The staking pool you’re in may have its servers go offline, during which you can’t earn rewards. If your staking pool is too small, it might fail. If it grows too large, the blockchain may limit rewards.

Risks of lending

  • Margin calls: if the cryptocurrency you’ve put up as collateral drops in value, it may trigger a margin call. This could lead to you needing to add collateral to keep the loan.

PRO TIP! You can mitigate risk and potentially avoid margin calls by choosing a more conservative LTV and using YouHodler's “Take Profit” feature. 

  • Collateral is locked until payback: Like with staked crypto, the crypto you deposit as collateral isn’t available for use. You can only get your collateral back after paying back the loan in full.

Bottom line: Why use crypto lending over staking?

So, which option is better? There are several advantages to crypto lending that staking doesn’t offer. 

1. Fast funding for any purpose

Unlike staking, crypto loans give you more funds to work within your trading. The process is fairly simple and very fast. There’s no limit to what you can use your borrowed crypto for. You can use it as 

  • a personal loan, 
  • Emergencies,
  • Daily life needs
  • business activities, or large purchases.

2. Affordable

YouHodler has lower interest rates than banks and much less paperwork involved. As long as you’re able to meet the minimum monthly payments, you’ll also receive all your collateral back. 

With staking, you must pledge a minimum amount for the blockchain to consider choosing you as a validator. In Ethereum, for example, you must pledge 32 ETH - over $27,000! However, with loans, you can turn a profit at any amount you need.

3. Flexible

Not only can you use a loan for any purpose, but you can also customize its terms. From the duration to LTV, you can ensure your loan suits your trading goals and needs. 

4. No credit scores

You don’t need to provide your financial information, like a credit score, to receive a crypto loan. 

5. No need for long-term investment

Staking requires a minimum duration, and the longer you stake, the more rewards you get. However, there are many strategies you can use to turn short-term profits with a crypto loan. Loans need far less time and energy from you!

So don’t sell your crypto, lock it in some anonymous DeFi platform or wait in line at the bank for a loan. Go with a trusted institution like YouHodler that’s more convenient and affordable for you.

Disclaimer “The content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is made available to you for information and/or education purposes only.

You should take independent investment advice from a professional in connection with, or independently research and verify any information that you find in the article and wish to rely upon.”

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