Financial regulation hasn't been fully extended to the crypto space yet. As a result, several crypto platforms do not yet follow existing financial laws.
The lack of regulation raises safety concerns for those considering crypto lending. Beyond regulation, other factors also make investors wary of investing in this space.
For example, some crypto lending companies are uninsured. Also, the crypto markets are prone to volatile price swings. These concerns have led many to wonder: is crypto lending safe? What are the safest crypto lending platforms? How can I select a secure crypto lending platform?
This article will focus on the safety of crypto lending. We will discuss some of the safety issues currently plaguing crypto lending platforms. Additionally, we will review some of the safest crypto lending platforms available today. Finally, this article offers safety tips to investors joining the crypto lending industry.
What are the Safety Issues With Crypto Lending?
1. Some Crypto Lending Platforms Lack Insurance
Some crypto lending platforms are uninsured. These platforms cannot compensate the users if there are hacks or thefts. Users who make crypto deposits on these platforms risk losing all their assets.
Investors can also lose their assets if a crypto lending platform goes bankrupt. The bankruptcy of the Celsius lending platform is a recent example.
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2. Cyber-attacks on Your Stored Crypto Assets
Crypto lending platforms are a target for hackers due to the large amounts of crypto assets they hold.
Currently, several platforms in this space rely on custodial managers for asset storage. But these platforms cannot provide a 100% guarantee of asset safety.
Additionally, some crypto lending platforms do not use custodial asset managers. This increases the risks attached to the safety of crypto deposits for investors.
3. Smart Contracts can be Faulty
Smart contracts form the building blocks of any decentralized finance platform. These contracts are made up of lines of code that govern the operations of all DeFi protocols.
Since humans write the code, there might be an error embedded in the code. Such mistakes can lead to operational and security risks. This can affect the performance of critical features on a DeFi lending protocol.
Smart contracts operate without input from an intermediary in the background. So, no one can be blamed if a smart contract fails and assets are lost because of it.
4. Lack of Proper Crypto Regulations
Unlike most mainstream asset classes, the crypto space isn't fully regulated. This is particularly true for DeFi platforms.
Who can you sue if you lose your assets on a DeFi platform? You won't be able to take any legal action in most cases. But, you can hold a CeFi platform responsible for not fulfilling its obligations.
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5. Crypto is Volatile
The volatile markets are another reason for the safety concerns expressed by investors. Crypto is highly volatile, and investors risk seeing their assets lose value.
The Safest Crypto Lending Platforms
The crypto lending sector has seen an increase in patronage over the past few years. This section of our guide will reveal some of the safest crypto lending platforms.
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Safest Crypto Lending Platforms to Use →
YouHodler
YouHodler is a lending platform that provides crypto-interest accounts. This platform allows users to earn up to 8.33% APY on deposits in over 50 digital assets.
YouHodler partners with Ledger and Fireblocks to ensure asset safety. Furthermore, users can benefit from $150 million in crime insurance funds.
YouHodler provides one of the industry's lowest minimum loan amounts and highest LTV ratios. Users can access loans as low as $100 and LTVs as high as 90%.
Nexo
This crypto lending platform provides access to interest accounts. In terms of investment opportunities, Nexo offers up to 14% APY on stablecoins deposits.
You will find Nexo's certifications on its licenses and registrations page. Additionally, a $775 million insurance policy covers Nexo.
Crypto Lending Safety Tips
The crypto lending space offers investors the opportunity to access several investment opportunities. However, investors need a safe and reliable crypto lending platform to use. This section shows factors to consider when choosing a crypto lending platform.
Choose Established Crypto Platforms
Investors should pay attention to top-rated crypto lending platforms available within their jurisdiction. Users must conduct research on which platform is best before deciding on one.
Select Platforms With Insurance Policies
Investors should select platforms that offer adequate insurance coverage to their users. Some centralized platforms provide insurance policies that cover technical risks and asset theft. Some platforms increase the insurance coverage that their custodial asset managers offer to users.
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Which Crypto Lending Platforms Have the Best Insurance →
Always Check Smart Contracts
Smart contracts used on all DeFi platforms are usually available to the public. If possible, you can check out the smart contracts yourself.
Invest In Stablecoins
Investors can easily avoid volatility by investing in stablecoins. Some platforms offer a higher interest rate on stablecoins.
The value of stablecoins is tied to an underlying stable asset, like the US dollar. Unlike Bitcoin or other cryptos, there is no volatility risk with stablecoins.
Conclusion
Crypto lending platforms are responsible for the safety of their investors. For this reason, many are improving the quality of service they offer to their users.
The Securities and Exchange Commission has also begun to regulate the crypto space.
A combination of these factors will make crypto lending safer in the future. For now, investors are urged to research crypto lending. They should also consider the safety tips in this article when choosing a platform.
