By 
Jun 7, 2016
Lending on Cryptocurrency Exchanges
The safe way of lending to margin traders and the smart alternative of P2P lending.
What does lending on exchanges mean?
On some exchanges you are allowed to lend Bitcoin (or any other cryptocurrency) to the people trying to go short (bet that the currency will fall). It’s very similar to p2p lending, but instead lending Bitcoin to people who are going to invest it in some unknown activity, you are borrowing to people who trade.
This kind of lending is not called p2p (person to person) due to the fact that you can’t choose the person who you borrow to. You don’t know who received your Bitcoins and everything is managed by the cryptocurrency exchange.
What are the benefits of crypto lending?
There are many benefits of borrowing your money on crypto-exchanges to margin traders. The key benefits of this kind of investment are:
- Low Risk – The borrower can’t scam you and he can’t take out the Bitcoins out of the exchange.
- Good Return of Investment – It’s about 0.02% per day (more or less depending on the currency). This sums up to a total of 0.0002*365 = 7.3% per year!
- Less time required – you don’t need to search for the best lending possibility, because it’s all about lending to traders. You don’t need to investigate the person etc.
- Bonus earning upon trading – For example, if you are long on Ethereum and think you will stay on this position for at least one week, then why not just lend your current Ethereum? You will receive extra returns on your invested capital.
- Self Managed – all the payments are automated, you won’t need to chat with nobody.
Where can you do this kind of lending?
As the name suggests, margin funding is done on Cryptocurrency Exchanges.
Best Platforms to lend Bitcoin or any other cryptocurrency
Here is a list of the top margin funding platforms we use currently. You can read more information on each one of them, see how to lend Bitcoins step-by-step and learn the key benefits. Currently, we are lending mainly on the
Poloniex Exchange and bitfinex.com.
Check out our youtube video on BTC lending: https://www.youtube.com/watch?v=s4qaIel8GFI
If you are too lazy to handle this manually, you can always try the Poloniex Lending Bot. For only 10% of your lending profit, it will make everything automatically.
Can you lose all your Bitcoins by lending on exchanges?
People can not take your Bitcoin and run away. So it’s not possible for borrowers to lose everything they have. If their trading position is at a loss, he will cover the loss with the funds in his trading account. The funds in the trading wallet serve as a collateral only, meaning that a trader’s position is force liquidated, if the value of his account falls below the maintenance margin. This maintenance margin guarantees us, that we will get our coins back.
The only risk on margin funding: the exchanges
The hazard on lending Bitcoins on exchanges is only in terms of the exchanges scamming you. This means, that the owners of the exchanges decide to disappear and run away with all the coins people invested into their trading wallets. Another risk is the exchanges to get hacked.
This something that should not happen anyways, but there is always a very slim chance and you should be aware of this worst case scenario.
Tips on Margin Funding
Here are the most important lessons we from CoinStaker have learned on lending our cryptocurrencies on exchanges:
Open accounts on all exchanges – this will reduce the only risk you have: to get scammed by the exchange. Furthermore you will be able to lend more cryptocoins.
Choose your Rate (%) smartly – We always check out what the lowest offered lending percentage is, and select 0.001% less than it. This way your cryptocoins wont wait to get lend and you will maximize the earnings.
Choose your lending period wisely – If you don’t have time to check everyday for the best possible interest rate, than you should lend your funds for 15-30 days.
See if you trust the cryptocurrency – To lend coins, you need to have those coins. This means, if you want to lend STR (star) Coins – because they have the best daily return rate – then you need to buy them before lending them. This means, you will be holding on the STR coins for some period of time. Therefore you should just lend coins, whichever you trust and think will gain on value.
Summary on margin funding
Lending on Bitcoin Exchanges is one of the best ways to let your coins work for you. You will be getting daily returns on your coins, which normally would just stay in your wallet and do nothing. Margin funding is one of the safest ways to invest in the bitcoin World. In comparison to p2p lending risk and reward are lower.
If you trade on a cryptocurrency exchange, than you should definitely check out our guide on cryptotrading and start immediately earning a little bit more – day by day – by lending on exchanges!
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very Informative, got basic concept but need to know more about crypto currency trading and security of funds.