BUSD Lending: What to Know About Rates, Exchanges, Risks and Benefits

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Best lending rates available from top lending platforms for October 7, 2022

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If you hold Binance USD (BUSD) in your wallet, you can reap the benefits of lending out your tokens on centralized and decentralized platforms in return for interest payments — but is it the right move for you? Let’s find out.

Key Takeaways

  • BUSD was designed to maintain a stable $1 value, so while holders can’t capitalize on the token’s market volatility, they can earn interest payments for lending out the coin to borrowers.
  • Interest payments on stablecoins can be a lot more lucrative than they are on other types of tokens, which is a big benefit of lending BUSD.
  • Borrower demand remains high for BUSD and other stablecoins.

Binance USD Lending

When it comes to cryptos, you have tons of choices — and that includes stablecoins, which are tokens that are tied to fiat currency to keep their value stable.

One of those stablecoins is Binance USD (BUSD), which was founded by Binance and Paxos in 2019. Like other stablecoins, BUSD was designed to maintain a stable value in a highly volatile crypto market.

By investing in BUSD, crypto users are able to mitigate some of the risk of high-risk investment products by protecting themselves from market uncertainties.

Over the years, BUSD has continued to perform well and has grown to become the third-largest stablecoin on the market.

The ongoing success of BUSD has led more and more crypto users to add the token to their portfolios. But it’s not just the token’s stable value that makes it alluring to investors; the value the token offers as a lending product does, too.

Lending BUSD on DeFi and CeFi exchanges can be lucrative for holders who want to earn interest on the tokens in their wallets.

That’s because interest rate payments tend to be high on stablecoins, BUSD included, as the demand from borrowers is strong. If you’re trying to find ways to earn on crypto that is sitting unused in a wallet, lending out your BUSD could be a smart option to consider.

Right now, there are well over 30 exchanges and more than 20 wallets that support BUSD, making it a reliable option for lending.

What is BUSD lending?

BUSD lending is precisely what it sounds like: It’s the process of lending out your BUSD tokens to borrowers in return for interest payments.

This process is similar to any other type of loan, but unlike a mortgage or personal loan, the lenders are individual crypto holders, not financial institutions.

Aside from the potential for high-interest payments, one of the main draws of lending your BUSD tokens is that the numerous crypto exchanges and platforms that users have access to can make it an easy process.

Depending on the lending option you choose, you may simply be required to log into your account or wallet and offer your tokens up for lending purposes.

How does BUSD lending work?

This type of lending is done in a few different ways. BUSD holders can choose to lend their tokens in a peer-to-peer manner on a decentralized exchange or by offering their tokens up for borrowing on a centralized exchange.

No matter what route is chosen, however, lending BUSD can be an easy, safe way to earn income on tokens that you don’t need immediate access to.

Lending on these platforms works similarly to the way that lending does through traditional financial institutions and banks.

Borrowers express interest in a loan and then put up collateral — typically in the form of another type of crypto — to guarantee that the loan will be repaid. The crypto that is borrowed is sent to the borrower’s wallet, and it is eventually paid back, with interest, to the lender or exchange it was borrowed from.

Depending on the chosen method of lending, the interest payment will either go directly to the lender (in a decentralized peer-to-peer situation) or get divided among the lenders who pooled their tokens for borrowers on a CeFi exchange.

When using a CeFi platform, the exchange will typically take a portion of the interest payment and then divide the remaining interest payments among the lenders based on the amount they’ve offered up for borrowing.

These types of loans don’t just benefit the lender, either. Borrowers also benefit from no credit checks and low borrowing rates, which keeps the demand for crypto loans high.

CeFi BUSD lending

BUSD holders who want to earn interest on their tokens have the option to use a CeFi exchange, like BlockFi, to lend out their unused tokens.

While CeFi lending requires both borrowers and lenders to complete the Know Your Customer verification process, including offering proof of identity, these platforms tend to be easier to use — especially for crypto novices.

Not only are CeFi platform interfaces easier to navigate, but the steps for lending are typically streamlined, too.

Once your account is approved, you can start lending out unused BUSD tokens immediately.

That allows you to start earning interest quickly — with the exchange acting as a middleman and facilitating the process on all sides. This makes lending BUSD a simple process.

Plus, CeFi exchanges offer customer support, which means that you can get answers to any problems that may arise or any questions you may have.

And while you aren’t anonymous to the exchange, the process of lending and borrowing is still anonymous — meaning you aren’t privy to who the lenders and borrowers are — on these platforms.

Pros and cons of CeFi BUSD lending

Pros

  • Lending is a simple process, even for new users
  • Tax reporting is streamlined
  • Withdrawals and deposits are typically fast
  • Lending is plug-and-play

Cons

  • Higher fees are common
  • Temporary loss of control over tokens
  • Know Your Customer requirement

Pros of CeFi BUSD lending

Lending is a simple process, even for new users

CeFi lending works a lot like a traditional banking system, with borrowers putting up collateral in exchange for the crypto they’re borrowing.

This makes the process safe, and the user interfaces on CeFi platforms are typically easy to navigate, too. Plus, the lending process is built into the exchange, so the learning curve isn’t steep.

You simply connect the wallet with your BUSD tokens to the exchange and then follow a few steps.

Tax reporting is streamlined

The transactions that occur on CeFi exchanges are logged and available to you, which makes it easier to keep track of the transactions you’ll need to report on your taxes each year.

In general, the complicated tax reporting is a big negative for crypto users, but using a CeFi exchange to track your profits from lending BUSD is a big benefit.

Faster deposits and withdrawals

If you want quick access to deposits and withdrawals of your interest payments or tokens, a CeFi exchange offers it. A lot of centralized exchanges will even allow you to make transfers to or from debit cards rather than requiring you to use traditional bank accounts.

This makes it a lot easier to navigate the withdrawal and deposits you need to make. There may also be other benefits, like crypto debit cards, which are only offered by CeFi exchanges — and you can use them to earn while you spend your crypto gains.

The lending process is plug-and-play

You don’t have to understand smart contracts or how to use them if you opt to lend on a CeFi exchange. The smart contracts are built into the exchange technology, so lending is streamlined and simple — no higher-level tech knowledge required.

Cons of CeFi BUSD lending

Token custody is temporarily given to the exchange

If you want to use a CeFi exchange to lend out your BUSD, you’ll have to offer up temporary custody of your tokens to the exchange.

This may not seem like a big deal, but your coins won’t be in your control while you’re lending them out — and if the exchange collapses or has other liquidity issues, your tokens could be at risk.

Verification required

Before you use a centralized exchange, you’ll have to verify your identity as part of the Know Your Customer (KYC) requirements.

That’s because centralized exchanges have to follow regulations in order to allow access to U.S.-based traders, you’ll be required to offer a lot of information about your legal identity.

This removes the anonymity that many crypto users prefer, which can be a big downside.

Higher fees are common

CeFi exchanges are convenient, but you’ll typically pay for it in the form of higher fees.

That may not be a big negative for some users, but if you’re trying to optimize your lending profits or if you plan to conduct other types of transactions on the platform, the costs can add up quickly.

DeFi BUSD lending

When you use a decentralized or DeFi platform for BUSD, you’re removing the middleman from the equation. You’ll be dealing with peer-to-peer lending instead, either directly with a borrower or by pooling your tokens with other lenders to offer up to borrowers.

This can be a double-edged sword. While the interest rates can be higher on DeFi platforms, meaning that you may be able to earn more, you’ll also be taking on more risk and having to potentially wait for a borrower to come along.

It’s not just more of a hassle, though. Using a DeFi exchange can also be a lot more confusing for new lenders, as these platforms require more technical knowledge to navigate. The interfaces aren’t as slick, nor are the platforms as intuitive.

The tradeoff is higher rates and more control. When you lend on a DeFi platform, you’re likely going to receive higher interest rates, and you won’t have to verify your identity.

That cuts out the headache of the KYC process and makes it quicker to lend if you’re not already verified on a centralized platform.

Pros and cons of DeFi BUSD lending

Pros

  • Fees are typically lower on decentralized platforms
  • You make the decisions
  • Lenders retain crypto custody
  • There are no verification requirements to deal with

Cons

  • The learning curve is steep
  • May be required to wrap tokens

Pros of DeFi BUSD lending

Fees are typically lower

There is no middleman to help facilitate the transactions that occur on DeFi exchanges, which means the fees are typically lower.

In return, you have to handle most of the details on your own — but you won’t have to worry about any extra costs eating into your lending profits. That’s a pretty big plus for some users.

Lenders retain token custody

Unlike CeFi exchanges, you do not have to hand over control of your tokens on a DeFi exchange. You retain control the entire time you transact on these exchanges, which can be a big relief to certain crypto users.

The decisions are yours to make

Again, there is no middleman to determine or facilitate how the lending transactions take place, so you’re making the decisions on your lending when you use a DEX.

You decide the route you want to take for lending and are in control of both your tokens and the decisions every step of the way.

Fewer verification requirements

You don’t have to be verified to use a DEX; you simply log on with your wallet and transact. DEXs aren’t required to follow the Know Your Customer requirements that CeFi platforms are, so you get to maintain complete anonymity during the lending process.

The lack of verification is also a draw for users who don’t want to wait out the KYC process on a CeFi, which can take weeks or more in some cases.

Cons of DeFi BUSD lending

The learning curve is steep

DeFi exchanges aren’t built for novice users; they’re meant for experienced crypto users — and you will need some baseline knowledge to navigate them. If you’re a beginner, it’s typically easier to stick with CeFi lending rather than trying to run uphill on a DEX.

Smart contracts can be risky

When you use a DeFi exchange to lend your BUSD, you’ll be using smart contracts — which can be manipulated or have other issues with bugs. That can put your assets at risk and may also further complicate the process of lending.

May be required to wrap your tokens

If you’re using a DeFi exchange for swapping or trading, you may have to wrap your tokens — and that can be complicated.

When you wrap your tokens, you’re essentially creating a crypto that can be used on a different smartchain, and if it sounds complicated, well, it is. It’s not going to be easy to figure out for novices.

BUSD lending taxes

If you earn any profits on your BUSD lending, you will likely owe taxes on the income. According to Notice 2014-21, the IRS sees BUSD, and all other crypto, like any other type of asset or income.

That said, you aren’t going to owe taxes for simply lending your BUSD. You will, however, owe taxes on the profits you receive from lending — so the interest payments are what you’re typically taxed on.

If you’re wondering how this could impact your tax filings, it’s best to consult with a tax expert who has experience with crypto.

Final thoughts on lending BUSD

When it comes to lending BUSD, there are tons of user-friendly and intuitive platforms that offer excellent yield-earning options.

Lending your BUSD is a great way to maximize your crypto holdings in most cases, as the price stability of BUSD removes a lot of the price volatility tokens may otherwise face.

Plus, BUSD is in high demand from borrowers — and that can result in big gains from interest payments.

Before you start down this route, though, make sure you know which type of exchange you want to use — and weigh the risks and benefits of BUSD lending.

Frequently asked questions about BUSD lending

  • Is BUSD lending safe?

  • Should I lend my BUSD?

  • Where is the best place to lend BUSD?

  • What are the risks of lending BUSD?

  • How much can I earn from lending BUSD?

  • Will I owe taxes on BUSD?