Decentralized Finance (DeFi) is the new focus of the cryptocurrency space according to CryptoManiaks. It’s easy to see why: people with large HODL positions can earn a steady flow of interest payments from their funds while people who need a loan can skip credit checks and go straight to getting their loan amount.
The Cryptonomist holds a useful archive of articles about the DeFi space and all the innovations happening. In this article, however, we’ll focus on comparing a few crypto lending platforms available to people in 2020.
What is DeFi?
We start with the basics. After all, not everyone might be familiar with DeFi. If you know and want to skip ahead, feel free.
Coinbase defines DeFi and the platforms simply:
“At their core, the operations of these businesses are not managed by an institution and its employees — instead the rules are written in code (or smart contract, as mentioned above). Once the smart contract is deployed to the blockchain, DeFi dapps can run themselves with little to no human intervention (although in practice developers often do maintain the dapps with upgrades or bug fixes).”
This ability to run financial transactions on Ethereum smart contracts gives this financial sector the ability to be decentralized.
Decentralization brings several benefits:
- lower fees.
The DeFi space has also innovated on savings and lending.
A lender is someone who holds bags of cryptocurrencies. They might want to earn interest from them instead of letting them gather dust. So they put their cryptocurrencies on a DeFi platform and they’re able to earn interest ranging from 3% to 15% or more depending on the currency they deposit.
Such interest rates are worlds better than those offered by banks. A financial magazine called SmartAsset shows us why:
“According to the FDIC, the national average interest rate on savings accounts currently stands at 0.06% APY. This applies to both average and jumbo deposits (balances over $100,000).
While it was once easy to find a savings account at your local bank offering rates upwards of 3%, rates dropped precipitously following the Great Recession, with the national rate falling to approximately 0.22% for average deposits in 2009. The decline in rates is thanks in large part to the Federal Reserve lowering rates in December of 2008 and holding them steady until 2015. The Fed made four rate hikes in 2018, which helped boost savings account APYs. However, they dropped three times in 2019.”
Such low savings account rates are sure to persist into the future as the FED once again keeps interest rates low due to COVID.
Borrowers also take advantage of Defi.
Borrowers don’t need to have their credit checked. Instead, with a DeFi platform, they can simply put their cryptocurrencies up as collateral while borrowing fund for their needs.
With all that in mind, what are a few crypto lending platforms we can compare in 2020?
Comparison of DeFi lending platforms in 2020
YouHodler is a company founded in 2018. They are one of the few DeFi platforms that offer insurance through their Ledger Vault. This customized crime insurance program insuring crypto-assets for up to $150 million is led by Arch UK Lloyds of London syndicate.
Having your deposits and collateral insured is quite important since the DeFi space is new and therefore could still pose risks to hacks and scams.
YouHodler also offers deposits in fiat (USD, EUR, CHF, GBP), crypto (BTC) and stablecoin loans (USDT, USDC, TUSD, PAX, PAXG).
They offer interest rates to lenders between 3% and 12% APR, depending on the coin deposited. This shows they are quite competitive with the interest rates they offer for people to earn from their bags of cryptocurrencies.
The other platform to compare YouHodler to is another well known DeFi firm called BlockFi.
BlockFi does not offer as great of interest rates as YouHodler. They offer 3.2% to 8.6% on BTC, ETH, LTC, USDC, GUSD, and PAX — which is also a smaller selection of coins than YouHodler.
However, BlockFi has been around for longer (since 2017) and they use Gemini to secure their customer’s financial assets.
Gemini is a licensed New York trust company that undergoes regular bank exams and is subject to the New York Department of Financial Services cybersecurity regulations.
Of course there are plenty more DeFi platforms out there, but these two are the current top contenders. Many others might be scams — like Yfdexf.Finance which exit scammed with $20 million of their customers’ funds.