As of March 2022, around $47.2 billion worth of cryptocurrency was locked in lending agreements. When borrowers use crypto lending platforms, other investors supply the coins needed to fund loan amounts and in turn, the investors get a portion of the interest charges as rewards. And Ethereum, the largest smart-contract blockchain, is lendable on both centralized and decentralized platforms.
Here’s what you need to know about lending ETH and earning rewards on your deposits.
Key takeaways
- ETH tokens can earn around 3% to 4% in rewards when lent, but some platforms advertise higher rates
- Your earnings on ETH lending are taxable, and most CeFi platforms will provide the tax reporting forms needed to file taxes
- Risks of lending ETH should always be considered before committing tokens to any crypto-lending platform
What is ETH lending?
Lending any cryptocurrency is like lending money to a borrower: another person uses the funds you lent and then returns the balance, plus any accrued interest. When lending ETH, you can use a centralized, custodial platform or a decentralized, non-custodial platform. On the borrower’s side, your coins are then leveraged in trades — but they can use the funds for other purposes — to potentially earn more in Ethereum. Once the borrower pays back the ETH loan (plus interest and fees), your coins are available for another borrower.
Once you offer up coins for lending, they are locked in a smart contract or lent out on your behalf, depending on the…
