What to look for when earning interest on your crypto
Staking as well as crypto lending is a hot topic at the moment. It is still a recent phenomenon, and could only grow in interest. Google Trends for crypto lending for the last five years:
We are on the first major spike.
If you have crypto and are not planning to sell, being able to generate interest income on it is a nice option. Of course, it is not without risks, so take the time to educate yourself before you give your crypto to someone else to hold. Remember, they will not just take it and keep it for you, it will be most likely lent out to other parties and you are trusting that whoever is doing it, will do the lending in a safe manner.
As far as I know, there is no insurance that’s available to protect yourself in case the lender you gave the crypto to goes out of business. That’s why in my view it’s important to pick someone that has been around for a while, has a great reputation/reviews, especially when it comes to customer support and security.
Questions to ask outside of the reputation of the company
Here are the major parameters I want to define when comparing companies that offer interest.
The obvious one, the interest rate offered
The higher it is, the more interest you will earn. But go too high, and the company might be doing something super risky in order to be able to generate such high returns. If you compare three companies and their ETH APR, and it’s 8%, 5.5%, and 5% for each company respectively, I would be careful about the 8% one. Why can they afford the higher rate? It’s not out of the goodness of their heart.
Are there any minimum holding limits?
Does the lender require you to hold a certain minimum amount of crypto before you are eligible to earn interest? Do you start earning interest right away, or you must transfer a certain amount before you will start earning? Definitely check on that to make sure you don’t end up transferring crypto to it just to find out that’s not a high enough amount to earn interest. You will potentially end up wasting money on transfer fees.
Are there any maximum interest amounts?
Sometimes the company will offer a great APR of up to a certain amount of crypto. And then the APR will be smaller for the remaining amount. A company could offer 6% for your first BTC, but then the rest could be earning 2%. It’s important to find out the exact details.
What does the withdrawal process look like?
I put this one last but this could be the most important one. You must be really clear on how soon you can have your funds back. Remember, in the most likely case, your crypto is lent out and the company has to fetch the amount you request back from their cold wallets/custody, which takes time. Look for companies that are very upfront with this information and are very clear about how long it could take. Don’t be surprised 24 hour periods or longer to be involved. Some even require you to get in touch with the support and do a final confirmation that yes, you want to withdraw the crypto. I actually like that, withdrawal should be a very carefully vetted process.
At the end of the day, earning interest on your money is a nice bonus and could be worthwhile the effort to take advantage. Just be smart about it. Keep an eye on the company that you picked, check-in with their site/reviews to make sure they are continuing to execute well. Social media like Twitter and Reddit could be good spots to check on their user base and its temperature.
