Meanwhile, there are also many ways to earn interest with cryptocurrencies. We have listed here which providers offer you the highest interest rates for your cryptocurrencies.
Why can providers pay interest on individual cryptocurrencies?
Basically, there are various reasons why individual crypto exchanges and DeFi platforms can pay you interest on cryptocurrencies. It is not always clear exactly which approach is used to earn the interest. The processes are handled in the background by the exchange itself. However, the most common reasons why crypto exchanges can pay you interest are the following:
Staking
There are now many cryptocurrencies that are based on proof-of-stake. This means that energy-intensive mining is no longer carried out. Instead, investors can stake their cryptocurrencies as collateral and thus confirm transactions. However, this is sometimes quite complicated to set up as an investor. Crypto exchanges like Binance therefore stake for you and you profit from it without having to do much yourself. It even goes so far that Binance does not even charge a fee for this, but simply offers it as a service for its users. The profits are then passed on 1:1 to the investors. Popular cryptocurrencies to stake are Cardano (ADA), TRON (TRX), EOS and Polkadot (DOT). You can simply go to the “Binance Earn” section at Binance and stack your cryptocurrencies there with the click of a button. You don’t actually take any risks. The only disadvantages are that your cryptocurrencies have to remain on the exchange and you have to choose beforehand how long you want to stake your cryptocurrencies (between 15-90 days). During this time, you cannot withdraw your cryptocurrencies from the exchange or sell them. After the time has expired, you can simply reinvest the cryptocurrencies or freely dispose of them again.
Lending
Another way providers are able to pay you interest on cryptocurrencies is through lending, often referred to as margin lending. Cryptocurrencies are lent to traders who trade them with a leverage. Let’s say a trader wants to trade 10 Bitcoins and uses a 10x leverage. Then he only has to own 1 BTC himself and borrows the other 9 and pays interest. The entire lending process is done automatically for you by exchanges such as Binance or BlockFi. So you only see that you receive interest, but you don’t see where it comes from. It is often the case that this is margin lending. This is also relatively safe for the lender and the credit cannot actually be lost. Because to stay with our example with the 10 BTC. As soon as the price goes 10% against our trader with the 10x leverage, he is liquidated and the remaining 9 BTC are paid back to the lender including interest. You do not have to take care of anything. The entire transaction is handled by the exchanges.
DeFi
Another way to generate interest is in the area of DeFi. Here, for example, smart contracts are used where assets can be cleverly invested and lent. In the past, it has been shown that this is the riskiest investment option. This is because there have always been security gaps in the smart contracts that have been exploited. So if you want to earn money through DeFi, it is best to use exchanges such as Binance and only invest your funds in contracts that have been checked and approved by the platform.
How safe is it?
One of the first questions that comes up is always whether the whole thing is safe. Basically, we only recommend providers with whom we have an account and credit balance ourselves. Of course, everyone should be aware that you can only earn interest with credit balances that are on an exchange or other platform. Of course, this is a bit more dangerous than simply leaving the funds on a hardware wallet. However, the exchanges are now so secure that they store over 98% of the funds offline. So they are protected against hacker attacks in the best possible way. Generally speaking, you can therefore leave funds on the exchanges without any problems. You should only activate your 2-factor authentication in any case. It should also not be forgotten that professionals on the crypto exchanges take care of protecting your assets. Because in the private sector, with investors who hardly know anything about cryptocurrencies, a lot can go wrong quickly. Therefore, the exchange is usually not really a significantly worse solution. Especially not when you consider that with many cryptocurrencies you also receive interest.
Provider
There are various providers that allow you to earn interest with cryptocurrencies. We have already explained why these platforms can do this. In the following, we want to give you a little insight into the platforms.
Binance
Founded only in 2017, the crypto exchange Binance has quickly become the largest crypto exchange in the world. In the meantime, the platform has become much more powerful than just enabling the trading of cryptocurrencies. There is now a separate section called “Binance Earn”. Here you can lend cryptocurrencies in addition to staking them. Binance differentiates between a fixed and a flexible term. Of course, the interest rates are often higher for fixed terms. In addition, there are also considerably more options for investing cryptocurrencies with fixed terms. Binance stands out above all because they do not charge a fee for the staking of your cryptocurrencies or retain a percentage of the profit. The whole thing is simply run as a service for investors. Often there are also specials that arise from cooperations with the cryptocurrencies, so that you even get a higher percentage than if you were to stake yourself.
BlockFi
Many well-known companies from the crypto sector have invested in BlockFi. These include the Winkelvoss twins, who became known for their role at Facebook. Coinbase has also invested in the company. At BlockFi, for example, you can get a loan secured by crypto assets. In addition, BlockFi pays the highest interest rates if you store your Bitcoin or Ethereum assets there. BlockFi has therefore quickly become popular in the crypto scene. The company is based in the USA, but can also be used by Germans without any problems.
Nexo
This is also a company that provides instant crypto loans. In addition, you can also invest a lot of money with Nexo and receive interest on it. Nexo is based in London.
Celsius
Similar to Nexo and BlockFi, Celsius also specialises in lending and saving cryptocurrencies. The company is based in New York.
