Crypto lending 101: Everything you need to know about managing risk

Published on by Cryptoslate | Published on

Promises of over 10 percent interest rates don't come without its own sets of risk-despite its bid to replace the traditional financial system, crypto lending is still very much an experimental market.

We break down the benefits and the dangers of crypto lending in 2020 so you can make an informed decision on how to enter the market.

Crypto lending is the latest phase in the evolution of DeFi.

Jumping headfirst into DeFi and pouring your holdings into crypto lending platforms is far riskier than it might sound.

Understanding risk is understanding how crypto lending works.

The two types of cryptocurrency lending platforms are custodial and non-custodial lenders, both of them let users earn interest on cryptocurrencies.

DeFi lending platforms are still on the path to maturity and the whole lending landscape is currently like a giant stress test.

As most cryptocurrency lending platforms rely on economic incentives to encourage its users to participate in the network, a change in market sentiment could cause them to essentially stop working.

While the risk of economic incentive failure is by far the lowest one when it comes to decentralized crypto lenders, it's still worth considering.

Diversification is always a good strategy to minimize risk when choosing lending platforms.

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