Explainer: The world of crypto lending

A representation of cryptocurrencies in this illustration taken on January 24, 2022. REUTERS / Dado Ruvic / Illustration

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LONDON, June 13 (Reuters) – The largest US cryptocurrency lending company Celsius Network froze withdrawals and transfers on Monday, citing “extreme” market conditions, which led to a liquidation in the cryptocurrency markets. Read more

Here’s what you need to know about cryptocurrencies: a corner of the digital asset market that has grown over the past two years as interest in cryptocurrencies has risen.


Cryptographic loans are essentially banking, for the crypto world.

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Just as customers of traditional banks earn interest on their savings in dollars or pounds, users of cryptocurrencies who deposit their bitcoin or ether into cryptocurrency lenders also make money, usually in cryptocurrency.

While traditional bank savings offer negligible returns due to historically low interest rates, cryptocurrency lenders offer much higher returns, up to 20% at the higher end, although rates depend on the tokens that are deposited.

Crypto lenders make money by lending, also for a fee, usually between 5% and 10%, digital tokens to investors or crypto companies, who can use the tokens for speculation, hedging, or as working capital. Lenders benefit from the differential between the interest they pay on deposits and the interest they charge on loans.



Cryptographic lending has grown over the past two years, along with decentralized financing platforms or “DeFi”. DeFi and crypto lending offer an insight into financial services where lenders and borrowers avoid traditional financial firms that act as guardians of loans or other products.

Sites say they are also easier to access than banks, as potential customers face less paperwork when providing or requesting encryption.

The total value of cryptography on DeFi sites soared to a record $ 110 billion in November, five times more than the previous year and reflecting historic highs for Bitcoin, according to industry site DeFi Pulse.

Traditional investors and venture capital firms, from Canada’s second-largest pension fund, Caisse de Depot et Placement du Quebec, to Bain Capital Ventures, have supported cryptocurrency lending platforms.


There are several.

Unlike traditional regulated banks, cryptocurrencies are not overseen by financial regulators, so there are few rules about the capital they should own or transparency about their reserves.

This means that customers who keep their cryptography on the platforms could lose access to their funds, as happened with Celsius on Monday.

Cryptocurrency lenders also face other risks, from volatility in crypto markets that can affect the value of savings to technology failures and hacking.


New Jersey-based Celsius is among them, with more than $ 11 billion on its platform.

Other major creditors are also based in the United States. New York-based Genesis posted $ 44.3 billion in loans in the first quarter, with $ 14.6 billion in active loans as of March.

Other big names include US lender BlockFi, which has about $ 10 billion in assets under management, and London-based Nexus, which has $ 12 billion.


Cryptocurrency lenders are in the spotlight of U.S. regulators and securities regulators, who say interest-bearing products are unregistered securities.

In February, BlockFi agreed to pay $ 100 million in a landmark deal with the SEC and U.S. state authorities for its performance product. Read more

Those same state regulators issued a Celsius-like cessation and withdrawal order in September, calling their product Earn an unrecorded value.

More broadly, DeFi is creating risks for investors as it evolves to reflect traditional markets, a global securities regulator said in March, including a lack of disclosure of products and systems, unreliable reliability and problems. of scale operation. Read more

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Report by Tom Wilson and Elizabeth Howcroft in London and Hannah Lang in Washington; Edited by David Evans

Our standards: the trustworthy principles of Thomson Reuters.

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