What is Lending
Crypto lending is similar to lending in traditional financial markets. The lender lends money to the borrower and the borrower assumes the debt, usually with the responsibility to pay the interest on that debt until the principal and interest on the debt are paid in full. The main difference between crypto lending and traditional lending is that the underlying assets in crypto lending are crypto assets.
There are two main types of crypto lending platforms: decentralized lending protocol and centralized crypto lenders. Both serve as a platform to connect lenders and borrowers. Crypto lending typically requires borrowers to deposit crypto collateral to access a crypto loan.
A typical example of decentralized crypto lending is Aave, a permissionless decentralized lending protocol. Users can deposit crypto assets into Aave to provide liquidity and earn interest income. Depositors could choose to use the deposited crypto assets as collateral to borrow other crypto assets.
A centralized crypto lending is a centralized company that provides crypto lending and borrowing services. A typical example is the Binance Earn Crypto Loans services the Binance exchange provides.
Crypto lending benefits crypto holders to unlock the liquidity of their holdings so that they do not need to sell their tokens to obtain liquidity.
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