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Earning crypto by participating in decentralized finance (DeFi)

Decentralized finance, or DeFi, has emerged as a new trend in the crypto world. Unlike traditional finance, DeFi operates on a decentralized blockchain network, allowing users to access financial services without intermediaries. One of the main advantages of DeFi is the opportunity it presents to earn cryptocurrency by borrowing and lending.

In this blog, we’ll explore the various ways users can earn crypto through DeFi lending and borrowing. But first, let’s understand how DeFi lending and borrowing works.



DeFi lending and borrowing

DeFi lending and borrowing is similar to traditional lending and borrowing. However, instead of banks, DeFi platforms allow users to lend and borrow cryptocurrencies directly from each other. Lenders earn interest on their deposited crypto, while borrowers pay interest on the borrowed amount.

One of the most popular DeFi lending and borrowing platforms is Compound Finance. Users can lend their crypto on Compound and earn interest on it, which is paid out in the same currency they deposited. Borrowers, on the other hand, can borrow crypto by depositing collateral and paying interest on the borrowed amount.



Earning crypto by lending

If you have crypto that you’re not using, you can earn interest on it by lending it on a DeFi platform. The interest rates on DeFi lending platforms are typically higher than those offered by traditional banks. Moreover, you can earn interest in the same currency you deposited, so you don’t have to worry about exchange rates.

For example, let’s say you have 10 ETH that you’re not using. You can deposit it on Compound and earn interest on it. At the time of writing, the interest rate on ETH deposits on Compound is around 3.17% APY. That means you can earn around 0.317 ETH per year by lending your 10 ETH on Compound.



Earning crypto by borrowing

You can also earn crypto by borrowing it on a DeFi platform. However, this method is riskier than lending because you’ll have to pay interest on the borrowed amount. Moreover, you’ll have to deposit collateral to secure the loan, and if the value of your collateral falls below a certain level, your collateral may be liquidated.

For example, let’s say you want to borrow 10 ETH on Compound. You’ll have to deposit collateral worth more than 10 ETH to secure the loan. At the time of writing, the interest rate on ETH loans on Compound is around 4.83% APY. That means you’ll have to pay around 0.483 ETH per year in interest on your 10 ETH loan.



Conclusion

DeFi lending and borrowing provides an opportunity to earn crypto by lending or borrowing it directly from other users. It’s important to note that DeFi platforms are not without risk, and you should only participate if you understand the risks involved. However, if you’re willing to take the risk, DeFi lending and borrowing can be a great way to earn crypto and take advantage of the high-interest rates offered by DeFi platforms.

Disclaimer: Not Financial Advice
The information provided in this content is for educational and informational purposes only. It should not be considered as financial, investment, or professional advice. Always do your own research and consult with a qualified financial advisor before making any investment decisions.

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