Crypto coin lending for beginners - Part 2: Collateralized loans
In part 1 of this series of posts I've introduced the basics of lending (read here). In this piece, I want to describe how you can get started with lending on one of the platforms I use - Poloniex.
First, obviously, create an account at Poloniex. That's not very difficult, but you'll have to get verified in order to get started. Poloniex used not to ask for any proof of your identity, but that account type has been deprecated.
Second, you need to supply your account with some cryptos. I think that most readers are aware of how to deal with deposits on exchanges, but if not, there's plenty of material here on Steemit or else on the web.
On Poloniex, you can get into the lending business on the following coins:
- Bitcoin
- BitShares
- CLAM
- Dogecoin
- Dash
- Litecoin
- MaidSafeCoin
- Stellar Lumens
- Monero
- Ether
- Factom
Whether or not it's worth it strongly depends on the market for the particular coin. At the time of writing, the interest rates range from 0.0001 % / day on e.g. Ether up to 0.04 % / day on Stellar Lumens. You don't need a lot of math to calculate your yearly interest based on these rates, but keep in mind - the rates may change quickly.
Step 3 would be to transfer funds to your Lending account:
Step 4 - Click on lending and have a look at your markets. The UX here is not entirely intuitive, but you'll get used to it quickly.
Before you get started, you should know the following:
- Again, all rates are daily.
- Lending is only possible on the lender side. You cannot borrow coins and transfer them to your wallet. The borrowers of your coins will be people doing margin trading on Poloniex. If you want to know what margin trading is and how it works, you can read up material on Poloniex or stay tuned, there'll be an article on that as well.
- Because of 2, the interest rates will depend on the number of people shorting a particular coin. If people are betting on the price for, say, Bitcoin going down, they'll want to borrow coins and likely pay a higher interest rate.
- As another result, your money is very safe and the likelihood of default is close to 0.
- The loan duration (between 2 and 60 days) is the duration for which the lender guarantees the agreed interest rate. The borrower will be allowed to pay you back anytime within this period, so make sure you check your loans every now and then.
- Auto-renew will re-submit your loan offer once the borrower pays back automatically. This is partially useful as the market may change until your offer gets renewed. Also, this features won't automatically submit an offer for the interest that you've made on your last loan.
- Poloniex charges 15% on your interest. This is being paid once you get the loan and the interest paid back.
- Borrowers can also borrow fractions from your offer. This way, you may end up having hundreds of loans although you've just submitted once offer. Don't be surprised, it gets really messy after a while, so every now and then it makes sense to just disable Auto-renew for all your loans to get a "reset".
Now, click e.g. on the BTC row in your upper right corner to see the current market for Bitcoin lending:
It makes sense to watch the market a little bit and not blindly submit at the cheapest available interest rate or below. Keep in mind, other people's loans end and get re-submitted with potentially old interest rates, so they may be too low for the current market.
If you get a good rate, you can try to set your duration to a longer period to get your higher rate. If the borrower doesn't pay you back early, you may have a really good deal. I once had a loan with an interest rate as high as 2% / day running for more than 15 days!
Lending can also be done e.g. on Bitfinex (they call it funding). The UX there for my taste is a little more complex, that's why I stuck to Poloniex for this example.
That should be it for now. If you have any remarks or questions, please leave a comment.