Best DeFi Platforms for Lending
Here are the top DeFi platforms by active loans, so you can get a sense of their relative strength:
Highest DeFi Lending Rates
We track the best interest rates paid to depositors across five major DeFi protocols. Here’s a primer on each platform and how much you can earn.
Aave
Aave is an established decentralized lending protocol where anyone can borrow and lend cryptocurrencies. Powered by smart contracts on the Ethereum blockchain, Aave provides liquidity across 25 markets to allow digital asset investors to borrow funds or earn interest on idle digital asset holdings. Learn how to use Aave here.
Compound
Compound Compound is the leading decentralized money market protocol and one of the oldest DeFi applications on the market. Offering lending markets for 12 digital assets, Compound allows investors to deposit funds and earn a variable yield or borrow against digital asset holdings. Learn how to use Compound here.
Coinbase
Coinbase Coinbase has the most limited DeFi offerings, but perhaps the most trusted. What you trade in yield, you make up for in reputation: some consider it the gold standard of cryptocurrency exchanges. A fully licensed, publicly traded U.S. company, Coinbase has over 73 million customers worldwide. Learn how to use Coinbase here.
dYdX
dYdX is a decentralized derivatives trading platform that also allows users to earn yield on the funds they deposit into the Ethereum-powered application’s smart contract. The interest rate paid will depend on the supply and demand of depositors and borrowers on the DeFi application. Learn how to use dYdX here.
Vespers
Vespers is an up-and-coming DeFi app backed by industry heavyweights that currently lets you earn yield using Vesper Grow. Via smart contracts, Vesper takes pooled digital assets and deploys them across multiple DeFi protocols and returns the yield to you. Learn how to use Vesper here.
Additional DeFi Lending Platforms
BENQI is a decentralized, non-custodial liquidity marketplace protocol. With over $289 million in total, BENQI allows users to lend, borrow, and earn rewards on their digital assets. BENQI is ideal for those looking for low transaction fees and fast confirmation times, as it is built on the Avalanche protocol.
CREAM is a decentralized lending protocol on Ethereum, Binance Smart Chain, and Fantom. It is designed to support long-tail assets and provide various DeFi services across multiple chains, providing flexibility and accessibility to different DeFi ecosystems.
Year.finance is a DeFi protocol that provides lending and yield farming services on the Ethereum blockchain. Yearn.finance currently has a market cap of over $232 million. Yearn.finance offers automated strategies that are ideal for individuals looking to maximize their yield.
Spark Protocol was designed specifically to provide a flexible infrastructure for lending and borrowing. It offers both variable and fixed interest rate options across different DeFi protocols, making it one of the most accessible options.
Morpho is a permissionless lending protocol based on a peer-to-peer matching algorithm that improves users’ lending and borrowing rates, while taking into account liquidity and risk requirements. By design, Morpho was created to optimize interest rates, leverage, and gas consumption for its users.
What is DeFi?
Decentralized Finance (DeFi) refers to open-source blockchain-based financial software that aims to provide financial products and services to anyone with an internet connection.
In today’s DeFi market, you can:
- Deposit digital assets into lending protocols to earn yield;
- Borrowing digital assets to access capital;
- Exchange one digital asset for another through decentralized trading pools;
- Earn fees for providing liquidity to autonomous trading platforms;
- Investing in traditional tokenized assets (stocks, commodities and currencies);
- Hedge your portfolio using decentralized derivatives;
- and more.
Arguably the biggest use case for DeFi to date is DeFi lending, which helps digital asset investors earn a yield on their holdings over the long term. Billions of dollars in cryptocurrencies are locked in decentralized lending pools.
Why are DeFi rates higher than traditional interest products?
The interest rates offered by DeFi platforms are generally higher than those of traditional banks. This is due to the high demand for borrowing digital assets from professional and institutional investors.
These professional traders and institutions borrow crypto assets to take leveraged positions in crypto markets. They aim to capitalize on market inefficiencies and price discrepancies, which can provide lucrative trading opportunities for experienced traders and investors.
The high demand for borrowing from these sophisticated market participants is driving up interest rates on DeFi platforms, making them more attractive to lenders compared to traditional bank rates.
Risks of DeFi Lending
Lending in DeFi markets is not without risks. Below are the main risks related to DeFi lending that you should be aware of before deploying capital in this new market.
- Code Risk – Vulnerabilities in a protocol’s smart contract could result in a complete loss of funds if bugs in the code were exploited by malicious third parties.
- Market risk – Volatility in the price of deposited tokens could result in a negative return on investment for lenders if the market price falls more than the yield generated.
- Oracle Failure – Price oracles used in DeFi applications could fail, leading to mispricing and loss of funds.
- Liquidity risk – A lack of liquidity could lead to lower prices when converting your funds to stablecoins, especially for smaller digital assets.
- De-pegging – If you have deposited a stablecoin or pegged asset, there is a possibility that they may be de-pegged, which could result in losses.
Lending on DeFi markets is a relatively new financial product and, as such, carries a higher risk than its established counterparts on traditional lending markets. So, as with any investment, it is advisable not to put all your eggs in one basket and only invest what you can afford to lose.
Key takeaways for investors
Getting approved for a traditional loan is a time-consuming process that requires consumers to jump through many hoops. DeFi loans are approved at a much faster pace, usually at a more lucrative rate than banks offer.
However, lending and borrowing in DeFi is generally riskier than in traditional markets. Technical and regulatory vulnerabilities exist and should be considered when choosing a lending platform. A high interest rate is not the only factor to consider.
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