Hodlnaut is a centralized crypto lending and borrowing service launched in 2019. The singaporean based firm allows users to lend out and earn weekly interest on selected cryptocurrencies.
Currently you can earn interest on 5 currencies: Ether, Bitcoin, USDC USDT and Dai. Hodlnaut lends these assets to corporates and institutional margin traders to generate returns.
The platform is extremely easy to use and overall convenient for those interested in generating some returns on their crypto instead of just hodling their assets in a crypto wallet.
Like always with investments it’s worth considering the tradeoff between risk and reward. The returns users can generate are currently around 6% per year but there are also some inherent risks to keep in mind, which we'll cover in detail later in the review.
Hodlnaut was founded by Juntao Zhu and Simon Lee in 2019, the two have backgrounds in the finance industry (Credit Suisse) and mechanical engineering respectively. Before starting Hodlnaut both founders worked at Antler (an early stage Venture Capitalists fund & company builder) as Entrepreneurs in Residence before they received 100k funding from the fund to build Hodlnaut.
Currently, the team is comprised of 8 members mainly based in Singapore but they're growing at a fast pace as can be seen by the number of open job listings on their website.
Hodlnaut is located in Singapore and operates under Singapore Law, which introduced the Payment Services Act on the 28th of January 2020and classifies cryptocurrencies as "digital payment tokens”. It has received a six-month grace period, and is currently applying for a license under the new regime.
Singapore is know to be a hub for crypto startups due to its clear and coherent guidelines for crypto companies.
As is expected with any centralized crypto lending provider, you need to identify yourself if you want to start using Hodlnaut. This entails signing-up using a valid email address and password, setting up 2FA (2 factor authentication) to prevent other people from accessing your acocunt, and uploading your ID documents.
For this last part, Hodlnaut uses Onfido, a KYC provider with a relatively seamless on-boarding process. You'll also have to upload. a selfie and Proof-of-address such as a utility bill that's not older than 6 months and proves you're living where you claim to live. Once this part is done, you'll receive an e-mail confirming that your account is fully verified which means you're ready to use Hodlnaut to start earning interest!
*In case you need help: There's a responsive customer support (We received help within 1 day after we uploaded an incorrect document for KYC)
When you're in your Hodlnaut dashboard, you'll see an overview of all the assets listed on the platform and their respective interest rates.
Once you know which asset you’d like to deposit go to the “Transfer” tab at the top of the page. On the transfer page, you'll be able to select the asset that you would like to start lending and see its respective deposit address.
After you've copied the deposit address you can head to your ethereum wallet or bitcoin wallet to initiate the transfer. Alternatively, if you store your crypto with a crypto exchange like Coinbase you can request a withdrawal to the Hodlnaut deposit address and the funds should equally arrive within a few hours.
Note, the deposits are settled on the Blockchain and Hodlnaut requests a certain number of block confirmations before it credits your account. For Bitcoin deposits, Holdnaut requests 6 confirmations whereas for Ethereum assets like DAI, USDC etc. it requires 30 confirmations.
Select the asset you would like to start lending
Copy the deposit address
Initiate the transfer
Wait until the transfer is settled
Automatically start earning interest
Overall, Hodlnaut is extremely easy to use and offers easy yield to anyone wanting to put their crypto to productive use. The website is kept super clean and simplistic for any type of user and easy to understand. Besides, they offer a great customer service for any issues you run into while signing up or lending.
We also like that there is no minimum deposit amount, which makes it a great choice for people who are new to crypto and want to start with small amounts to familiarize themselves with the service.
The "Account Overview" tab shows you the value of your portfolio, how much interest you're earned and when the next interest payment is due. The progress bar is a nice little touch which makes it easier to discern the information.
Currently, Hodlnaut allows you to lend out 5 different assets and earn a weekly yield currently between 6% - 8% Contrary to many other lending platforms Hodlnaut doesn't have a lock up period either. Any time you want to withdraw due to prices changing (ETH, BTC) you are free to do so which is great!
There's two types of fees you'll incur when using Hodlnaut. Blockchain transaction fees and Hodlnaut fees.
Blockchain transaction fees are the fees you pay to miners when you make any type of transfer on the Blockchain. When you deposit assets on Hodlnaut these fees will be automatically deducted from your crypto wallet. However, when you withdraw funds from Hodlnaut back to your crypto wallet, Hodlnaut will charge you for the transfer as they have to cover their own costs.
The withdrawal fees are adjusted regularly to mirror network conditions and you can check them out [here](You can check the current withdrawal costs here). Although the fees are small, it's something to consider if you just want to deposit $10 worth of crypto as it could eat up your returns.
On the other hand, Hodlnaut takes a small cut from lending returns just like most other lending services (including your bank). This is how Hodlnaut makes money. However, it doesn't disclose how high that fee is. As a user, you don't know precisely who Hodlnaut is lending the assets to and how much return they are making. Although this transparency would be desired, it is hard to manage in practice as the assets are lent to a diverse group of actors with various use cases and loan periods. We assume however, that the fee Hodlnaut charges is not too high, as it is incentivized to offer attractive interest rates to its users, else they would not deposit and choose other lending providers.
By lending out the assets deposited by users, Hodlnaut earns interest, which it pays out to users automatically every week. Hodlnaut takes a daily snapshot of the users account balance and calculates interest earned that day. Once a week on monday, the interest earned from users deposits is paid out in-kind (in the asset you deposited) directly to your Hodlnaut account. Interest rates are determined on a monthly basis dependent on earnings/demand from the past month.
Borrowers are typically investors, traders, hedge funds and miners who need liquidity to pursue their activities. Traders for example, might need stablecoins to buy more crypto or to chase an arbitrage opportunity. Miners might need cash to pay for expenditures like electricity or to pay wages but they don’t want to sell their crypto. Regardless, all of these borrowers have to post crypto collateral to secure their loan which makes the loan quite secure from a lender perspective.
If there is a lot of demand for loans from Hodlnaut borrowers, interest rates surge and so Hodlnaut users earn more. The opposite happens if there is little demand for loans. Due to the early stage and small size of the cryptocurrency industry, demand and supply of lending and borrowing varies greatly from month to month. Based on the performance of other crypto assets, lending and borrowing will be largely affected by these flows and reflected in the returns users on Hodlnaut are able to achieve.
When comparing these rates to traditional markets, it's worth noting that the interest rates within crypto markets are often much higher. Simply put, there's always a trade-off between risk and rewards, due to the maturity of the crypto space and potential risks faced when using digital currencies. Moreover, due to the lack of liquidity and efficiency in these young markets, there are lot of arbitrage/profit opportunities. Actors who know how to exploit these opportunities need capital and are willing to pay high rates.
As mentioned before there is always a tradeoff between risk and reward.
There are 4 main risks to consider for Hodlnaut users:
As with any financial service provider who holds other users assets in the digital age, the entity holding your money and lending it out is in charge of custodying them. Users' funds could get stolen from deposited wallets on Hodlnaut, or while funds are being lent out to borrowers.
To ensure the safety of user funds, Hodlnaut receives user funds on so-called multi-signature wallets, which require multiple parties signing off on transfers to secure user funds on Hodlnaut. The wallet infrastructure is provided by BitGo (one of the largest, most widely recognised digital asset security companies) and kept in custody until it is lent out to one of their partners.
One thing however, is that funds are not insured to cover hacking and instead the company states on their website: “We put aside some of our profits for our insurance fund to cover any potential losses.” This means that in the even of a hack, Hodlnaut will be taking on the loss and paying our users from their equity funds.
The platform runs on a secure cloud infrastructure on AWS, and all traffic is encrypted with SSL encryption. Hodlnaut also uses 2 factor authentication (Google authenticator) to ensure user accounts don't get hacked.
Companies borrowing from Hodlnaut could theoretically default on their loans. One of Hodlnauts most important tasks is therefore to ensure the credibility and risk profile of the institutions that borrow from Hodlnaut. They need to ensure that the companies they lend to are legitimate and solvent enough to pay back loans.
To reduce the risk of defaults on loans Hodlnaut states it is “selective with whom we lend out to, making sure they have a good credit score, and the loan is collateralized based on this.” However there is no further information on the precise collateralization ratio they require and the credit score behind the companies they lend to. One method to reduce risk is to diversify the number of companies they lend to in others words avoiding to put all eggs in one basket.
Given the early stage of this industry laws are always subject to change and while Singapore is considered quite welcoming to digital assets and cryptocurrencies, other countries in which Hodlnauts borrowers or clients are located may have less favorable rules for cryptocurrency. However, even in the face of stricter regulation, this would likely not impact customer’s funds. “Hodlnaut is based in Singapore and operating under Singapore Law, which introduced the Payment Services Act on the 28th of January 2020, which covers cryptocurrencies classified as "digital payment tokens. Hodlnaut has received a six-month grace period, and are currently applying for a license under the new regime.”
The assets that are available to be lent out on Hodlnaut (Dai, Ether, Bitcoin, USDT and USDC) are all subject to unique risks being a combination of different assets. Currencies like Ether and Bitcoin are highly volatile and can experience large changes in value while being lent out to customers. The remaining coins Dai, USDT and USDC are stable coins pegged to the US dollar. While this is considered safer, these coins are each subject to unique risks related to their ability to hold their dollar pegged value (more info).
For more on about risks, check out our article on the risks involved with crypto lending.
All in all, we were very pleased with the platform, it's simplicity, the customer service, attractive rates and emphasis on security. Like most crypto lenders it could improve on. transparency. While wallets used in deposits are secured by BitGo, we lack information about who Hodlnaut lends these assets to as well as their respective use cases and risk profiles. As Hodlnaut claims that all loans are secured with collateral and it only lends out to institutions, we expect this risk to be quite low but nevertheless.
One other factor is the lack of insurance in case of a counterparty default. Hodlnaut claims it will repay users from company profits instead of insurance which relies on the good faith and solvency of the firm. For those interested, Nexus Mutual offers users to buy insurance cover for lending platforms like Hodlnaut, BlockFi, Nexo etc.
All that being said, we believe Hodlnaut offers a great service to its users. In our own experience we saw no issues with deposits, interest payments and withdrawals and would recommend the platform.