Cryptocurrency Staking vs Lending

04-07-2023

Staking and loans are methods to receive passive earnings with crypto assets. Although both these methods involve using your digital coins, they are somewhat different. Today, we will list the main distinctions between these methods of passive income. Let’s start with staking crypto.

What Does It Mean to Stake Crypto?

Staking means depositing a certain asset in a digital wallet to assist the functioning of a network it is based on. It helps check and approve operations and safeguard the blockchain. As a result of your participation, you earn bonuses that are usually given out in the network`s native crypto.

Pros and Cons of Staking Crypto

Pros:

1. Rewards may be more appealing for newer or less established cryptos due to the potential for higher returns.
2. You can take an active role in securing and supporting a network.
3. You don`t have to worry about counterparty risk because you`re not loaning your coins to anyone, so there is no chance of borrowers defaulting.
Cons:

1. Tokens may be locked for a certain period of time, which can limit their ability to be traded and used. This is known as a lock-up period.
2. The value of staked tokens may change due to the highly volatile nature of crypto prices.

How to Lend Cryptocurrency?

When you take part in loaning, you loan out your assets to borrowers who pay you interest. You can lend your crypto through special platforms or DeFi protocols. Borrowers typically use the funds for trading, margin trading, or other reasons.

Pros:

1. Lending can offer a consistent and foreseeable source of income by receiving interest payments.
2. You have the freedom to select the lending terms that align with your risk tolerance, including the length of the loan and the rate of interest.
3. You can diversify your crypto portfolio with various crypto assets.
Cons:

1. In decentralized loaning platforms with anonymous participants, there is a risk that borrowers may default.
2. There is a hazard associated with the platform you use for loans, as it may have security vulnerabilities or may be targeted for hacks or scams.
3. Your investment may be affected if the value of the borrowed assets decreases significantly due to market risk.
Wrapping up, staking implies holding and staking tokens to take part in a network, while lending means providing your coins to borrowers. Staking can possibly provide higher profit but with less flexibility, whereas lending can offer a consistent income stream but involves risks related to counterparties and platforms. Deciding to stake or lend depends on factors such as your objectives, level of tolerance to risk, and whether you prefer actively participating in the crypto world or taking a more hands-off approach.