Cryptocurrency Lending Interest Rates for April 2020
Decentralized Finance lending – or DeFi lending for short – allows users to supply cryptocurrencies in exchange for an annualized return.
Welcome to the DeFi Rate lending page – your guide to real-time interest rates across all the most popular platforms in DeFi.
An Overview of DeFi Lending
For those unfamiliar with DeFi lending, here’s a quick glance at what makes it unique:
- Permissionless – Anyone can lend their assets across the protocol(s) of their choosing at minimal costs.
- Automated – Smart contracts follow pre-established parameters to issue, monitor and service active loans.
- Non-Custodial – Virtually all DeFi lending protocols do not require users to transfer ownership of their underlying assets. This means they can come and go as they please without any guidance or approval from a third party.
- Secure – Major lending protocols have been rigorously audited, meaning that funds supplied to lending contracts are backed by the most robust code in the world.
- Dynamic – Most major lending protocols today over variable interest rates which are automatically adjusted relative to the supply and demand of any given asset.
- Stress-Free – Interest earned from lending is collected automatically, meaning there is little to no degree of maintenance required by end-users to earn a passive income on the most popular cryptocurrencies.
In a rapidly evolving lending market, we find it important to keep our sights set on those platforms garnering the most traction. Most DeFi power users have turned to the DeFi Pulse leaderboard as a great way of seeing which platforms are seeing the most volume through a popular metric known as Total Value Locked (TVL).
In this section, we’ll provide a very brief overview of our suggested lending platforms, more importantly focusing on what makes each unique.
Compound Finance is a permissionless lending platform which uses native tokens called cTokens. Each asset has it’s own cToken (cDAI, cUSD, cETH) which track ownership and aggregate interest across their respective lending pool. Like many other lending protocols, Compound offers it’s highest returns on stablecoins like DAI and USDC.
Interest Type: Floating
Why Lend on Compound?
- cTokens can be used to purchase “Yield Sets” on Set Protocol
- Using Swap Rate, users can swap their variable interest for a fixed rate over a predefined window of time
- Users can purchase insurance on Compound smart contracts using Nexus Mutual
- Users can purchase options on cTokens using Opyn
- Compound is integrated into popular asset management dashboards like InstaDapp, DeFi Saver and Zerion
- Compound will soon release a governance token – COMP – which allows the community to dictate interest rates and protocol upgrades.
- Users can purchase an insurance-backed version of cDai using a project called SaveDai.
Aave has been turning heads since it’s mainnet launch in January with unique features like flash loans and stable borrowing. The platform uses record-keeping tokens – aTokens – which allow users to track interest earned in real-time.
Formerly known as ETHLend, Aave leverages a native token – LEND – which is used for governance and trading discounts, along with being burned using fees earned from borrowing.
Interest Rates: Floating
Why Lend on Aave?
- Users can use Swap Rate to lock in a fixed return on aDAI over a predefined period of time
- The platform’s potential for Flash Loans offers a strong mechanism for arbitrage on interest rates across different lending protocols.
dYdX is unique as it allows users to go long or short on Ether with up to 5x leverage in a permissionless fashion. Better yet, the rising decentralized exchange (DEX) provides cross-margin lending and borrowing, meaning users earn passive income while supported assets sit on the exchange.
Interest Rates: Floating
Why Lend on dYdX?
- Capital supplied on dYdX collects interest even while it is being used on an active trading position.
- Users can purchase smart contract covers on dYdX using Nexus Mutual.
Dharma is a consumer-facing product which is focused on making lending as accessible as possible. The platform largely focuses on stablecoin lending and recently introduced dTokens – or native interest-earning assets which siphon 10% of collected interest to Dharma as a revenue stream.
Interest Type: Floating
Why Lend on Dharma?
- Dharma offers a mobile-first approach. Their product is available on iOS and Android app stores and is quite intuitive to new users
- Unlike other lending protocols, Dharma offers a fiat onramp by allowing users to quickly swap from USD to supported stablecoins like USDC and Dai.
- The product comes baked with popular features like peer to peer transfers, giving users a Venmo-like experience.
- Dharma recently unveiled a new scaling solution, making transactions much quicker and cheaper for users.
Key Points to Consider
With so many different lending protocols at your disposal, here are a few of the boxes you should be sure to check before getting started:
- Relative Rates – If interest rates on one lending protocol are drastically higher than others, we suggest that you approach with caution. More times than not, higher returns come with a higher degree of risk.
- Custody – Be sure to note if a lending protocol is custodial or non-custodial. The easiest way to tell is by depositing a small amount of capital. If that capital can not be redeemed automatically at your discretion, chances are that protocol is custodial and has ownership of your capital for the duration of your interaction(s) with them.
- Audit History – Virtually all lending protocols will undergo a rigorous amount of audits before their “full launch”. It’s always great to make sure a platform has been audited before supplying any capital.
- Beta Mode – Many lending protocols are still in their nascency and will signal this with a “beta mode” indicator somewhere on the site. For new users, we recommend staying away from projects which are still in beta mode.
- Social Presence – Projects which have community-backing are often most active on social media. If you’re on the fence about lending with any given protocol, check out their Twitter to see if the community in engaging with their posts as a signal of trust.
DeFi Crypto Lending Platforms 
DeFi lending protocols are largely characterized by dynamic, floating interest rates which do not require custody to be transferred.
Centralized Crypto Lending Platforms 
Centralized lending protocols are largely characterized by fixed interest rates in which assets must be transferred and locked for a predefined period of time.
DeFi Lending vs Legacy Lending
Here are a few ways in which DeFi Lending differs from that of traditional money markets.
First and foremost, DeFi largely revolves around the lending of Ethereum-based cryptocurrencies.
Whereas traditional money markets consist of fiat currency, DeFi lending systems require the use of currencies which are able to interact with smart-contracts.
Since Ethereum is the most widely-used smart-contract platform, most DeFi lending systems solely support ERC20 tokens – unique Ethereum-based assets.
Stablecoins such as DAI and USDC are popular on DeFi lending platforms as they provide the potential for smart-contract interactions while holding a stable value (most are pegged to the US dollar).
Due to the permissionless nature of DeFi, loans are largely overcollateralized (commonly to the tune of 150%) as to provide a remedy if a borrower were to run off with the capital. In the event that a position becomes undercollateralized, it is automatically liquidated and sold on the open market to make sure the protocol is sufficiently collateralized.
In traditional lending, loans are often undercollateralized or collateralized with physical goods due to the strong back history of financial history garner from major financial institutions.
In traditional money markets, lending opportunities are often restricted to certain income brackets, credit scores and geographies. More so, many lending opportunities require collateral to be locked for a predetermined amount of time with institutions taking a cut on the interest being collected.
With DeFi, lending is now accessible to anyone with an internet connection. There is no minimum amount of capital required and interest can be collected at any time, 24 hours a day, 7 days a week.
Popular Cryptocurrencies Used in DeFi Lending
Dai is the leading DeFi stablecoin due its trustless nature. Unlike other stablecoins, Dai is backed by other cryptocurrencies like Ether. This provides users the confidence that trusted parties are not responsible for the custody and capitalization of the underlying asset(s).
Dai is pegged 1:1 with the US dollars and has taken on a variety of lending uses in the form of different token flavors. Dai is issued by the Maker protocol and has been referred by many as DeFi’s risk-free rate thanks to the Dai Savings Rate.
USDC is the second most popular stablecoin thanks largely to its support and issuance from Coinbase. Every USDC is backed 1:1 with a US Dollar and has been integrated into a number of notable DeFi products.
The trusted nature of Coinbase has made many feel that USDC is not “decentralized” – thus hindering it’s usage in the wider DeFi ecosystem. However, thanks to the Coinbase Bootstrap Fund, many projects have looked to USDC as the natural DeFi successor to Dai.
Ether is the “fuel” that powers Ethereum and is primarily used as payment for transacting on the nature.
While Ether has relatively low lending rates, all lending protocols have added support for ETH lending as it is currently the cryptocurrency with the second largest market cap today.
Due to the volatile nature of ETH, lending rates tend to be quite low as it’s much more difficult to predict what the price will be in a year from now relative to the aforementioned stablecoins.
Lending has quickly taken hold as the most popular sector within DeFi.
Given the attractive nature of passive income, we largely expect many protocols to integrate various lending opportunities into other sectors of the wider DeFi ecosystem.
Here at DeFi Rate, we pride ourselves on staying on top of lending news, rate changes and trends.
If you or your project are interested in appearing on our lending page, please contact us to set up a discussion with someone on our team.
Different lending protocols come with different risks. We believe it’s safe to lend via all of our top picks and always encourage users to never lend more than they would be willing to lose. While virtually all the top lending products have undergone significant audits, there is always a small chance funds could be compromised through unforeseen attack vectors.
All of our top picks use floating interest rates which change relative to the supply and demand of the underlying capital pools. Lending rates rise when there is more demand than supply and fall when there is more supply than demand. Most interest rates are marked as annual returns, and are often subject to change when the wide cryptocurrency market is suffering from rapid volatility in the underlying price(s) of the assets being supplied.
New projects tend to offer higher returns as a means of trying to attract capital to the platform. In these scenarios, it’s common for the issuing entity to provide extra returns on their behalf beyond what the market rate is. As mentioned above, if one platform is offering significantly higher returns than the others, it’s likely that it comes with a higher degree of risk and should be approached with caution.
What do I need to get started?
Virtually all DeFi lending protocols are accessed using a web3 wallet like MetaMask. To get started, users simply need to supply their wallet with a small amount of ETH to pay for transactions and whatever capital (in the form of the supported cryptocurrency) they wish to supply. A list of supported currencies across different lending platforms is provided on the chart at the top of this page.
Counterparties to cryptocurrency lending are typically sophisticated traders looking to take advantage of arbitrage opportunities or market trends. It’s common for borrowers to acquire capital from a lending protocol to participate in liquidation auctions or to trade on margin on exchanges like dYdX.
Seeing as returns vary across all lending protocols, there are often different ways to tangibly see how much interest your capital has earned. Many lending protocols will show returns in real-time, while others may require the uses of a DeFi dashboard like InstaDapp to easily see how much your outstanding position is worth in dollar terms.