Crypto Exchanges allow you to buy at the best market rate cryptocurrency using conventional payment methods like by bank transfer or credit card.Compare Lending Rates
Whether it’s a centralized saving provider or DeFi - you want to use a platform that is secure. Time is the best proof-of-security. Check how long a platform has been running without major hiccups.
Ease of use
A good and user-friendly interface goes a long way to make a platform enjoyable to use. The whole process should be straightforward and if there are questions left customer support should be in reach.
Total value locked is a metric that is commonly used to assess popularity of a lending platform. It refers to how much funds have been deposited by users. It demonstrates confidence in the platform and popularity.
DeFi protocols typically take significantly less fees than centralized saving apps as they exist to cut out the middlemen. When you lend funds on a DeFi platform you are matched to a borrower through a smart contract - no operational costs.
Stablecoins are tokens on the Ethereum network that reflect the price of the US dollar or other fiat currencies. The most popular are USDT and USDC. They are centralized stablecoins issued by companies who hold reserves of dollars in bank accounts. You also have decentralized stablecoins like DAI or sUSD which are collateralized by crypto assets. Stablecoins are practical if you want to invest your assets and earn interest without being exposed to volatility.
Like in traditional finance, lending rates in DeFi are ultimately determined by supply & demand. There are multiple reasons why the demand for borrowing is high in DeFi resulting in high interest rates. First, DeFi is global by definition so it brings borrowers from all over the world to the table. What might seem like a high interest rate for a loan to you might seem like a good deal to someone in an emerging market country where the cost of capital is much higher. Secondly, there are plenty of profit opportunities in the crypto space (partly because markets are still not 100% efficient). Traders pursuing these opportunities need liquidity and are willing to pay high interest rates for it.
To use any of the protocols listed above, you first need an Ethereum wallet. The most popular and widely supported wallet is Metamask. Once you have set up your wallet, you need to buy Ether on a crypto exchange and withdraw it to your wallet. You need to have Ether (ETH) in your wallet to pay for transaction fees of the Ethereum network. You can then go to any of the lending platforms above and deposit your assets to earn interest.
Most DeFi lending protocols give you a deposit token that proves your deposit. For example, when you deposit $DAI into the Aave protocol you receive $aDAI. When you deposit $DAI into Compound you receive cDAI. These tokens represent your share in the asset pool of the protocol and they automatically get incremented every few seconds depending on the current interest rate. In other words, you can sit back and relax while your balance keeps accruing. When you want to withdraw your funds from the protocol, your aDAI or cDAI will be converted into the equivalent amount of DAI and sent to your wallet.
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