Bitcoin Lending: Comparison of the 5 best Crypto platforms

What is Bitcoin Lending?

Bitcoin Lending is a pretty hot topic, because loans secured by cryptocurrencies are becoming a great way for investors, miners, hedge funds and people who don’t have a bank account to improve their finances by earning interest on their own Bitcoin holdings and thus receive passive income.

Risks: Not all that glitters is gold!

The old saying is true: Not your keys, not your coins. Since the majority of Bitcoin lending is done through crypto lending platforms, you have to trust them just like you would an exchange. In the future, there will be ways, just like Decentralized Finance (DeFi) works on Ethereum, to do the same on Bitcoin, where you can lend coins and still be in control. Projects like DeFi Chain (www.defichain.io/) or Rootstock (www.rootstock.io) are working on this, but they are still a bit in the future and so you still have to trust the lending platforms with your bitcoins as of now.

Where does the return come from?

First, we have to ask ourselves where the returns for lending cryptocurrencies come from. This is the difference between the legitimate platforms and all the rip-offs. If the platforms don’t make a return, then the payouts to the crypto-currency lenders are a pure ponzi scheme that will implode.

What do the interest rates depend on?

The question now is, how the returns between the different coins and also the different lending platforms differ from each other. On the one hand, this depends on how volatile a coin is itself. Large coins such as bitcoin are less volatile than smaller coins and can therefore usually only provide a lower yield. On the other hand, they are much more stable and secure over the long term.

Can I lose my capital?

Even if all platforms presented are serious, something can always go wrong. Even the largest platform presented, namely Binance, lost over 60 million US dollars in customer funds in 2019. So an important question is always whether there is some kind of insurance, either external or even better internal for customers. Internal insurance might even be better because theoretically, there is a guaranteed fund as the platform does not have to negotiate with an external party whether an insurance claim is valid. So the best thing is to choose a platform that offers such an insurance service — all the platforms presented have this in their own way. In Binance’s case, they were also able to refund all customers with the internal insurance.

The 5 evaluation criteria

Considering all the above mentioned points, I will measure the presented platforms as neutral and objective as possible against the following evaluation criteria:

  1. Transparency: As a customer, do I know where the returns come from?
  2. Size: How old or how big is the platform?
  3. Usability: How easy is the platform to use?
  4. Security fund: Are customer funds reasonably protected?

The 5 best Bitcoin lending platforms

Based on the above mentioned evaluation criteria, only the 5 platforms listed below come into question for me — pretty much all others raise red flags because they either pose massive risks for the customer or they appear to be a ponzi scheme.

  1. BlockFi www.blockfi.com
  2. Nexo www.nexo.io
  3. Celsius www.celsius.network
  4. Cake www.cakedefi.com

1. Binance

Binance (www.binance.com) is the largest provider of all and offers the largest variety of coins. However, on the other hand, Binance is not very transparent in terms of returns, and it is often said not to have any real returns but to see the returns purely as marketing costs. The returns and the possible participant slots are correspondingly low: https://www.binance.com/en/lending It is extremely easy to use and especially if you already use Binance as an exchange and don’t look too closely at the relatively low returns, it makes sense to use everything in one place — especially since the customer deposits seem to be quite safe via the SAFU protection fund.

  • Large company with strong financial backbone
  • Wide range of coins
  • Flexible time limits or fixed
  • Slots are usually quickly full
  • Low returns

2. Blockfi

Blockfi (www.blockfi.com) is also an “old dog” in the crypto lending ecosystem. Blockfi is particularly interesting if you want to lend smaller quantities, because Blockfi is co-financed from its own pocket for marketing and offers highly interesting returns: https://blockfi.com/rates/ The crypto assets are stored at Gemini. This third party custodian is a licensed custodian with insurance and has an excellent track record with no hacks or losses of customer funds. In fact, Gemini works with many lending services and other cryptocurrency sites.

  • Gemini provides good protection of the deposits
  • No limits — further temporally still with the quantity
  • No transparency where the returns come from

3. Nexo

Nexo (www.nexo.io) was founded in 2017 and sees itself as the largest crypto lender (https://nexo.io/company). Whether their numbers are really larger than Binance’s cannot be verified. They have almost 550,000 customers and offer a huge number of Fiat currencies including Stablecoins with attractive returns. And this is exactly where the weakness lies: there is no lending with Bitcoin or Ethereum yet. Furthermore, there are often rumors that Nexo lends their money via other peer to peer platforms and third party risks often arise from that. So far, however, these were only rumors and everything seems to be going well. Nexo’s wallets are provided by BitGo and so users are insured for up to $100,000,000.00 at Lloyd’s — a London based bank — in case of a hack or bankruptcy. This amount applies to the entire company, not per person. Since Nexo claims to manage 1.5 billion USD (i.e. 15 times the sum insured), investments are only 7% insured in case of a total loss.

  • Long track record and high-profile
  • No limits or minimums
  • Only fiat or stablecoins due to their business model
  • Insurance up to 100 million USD, which is however only a fraction of the total amount.

4. Celsius

Celsius Network (www.celsius.network) was founded in 2018 by Alex Mashinsky — one of the inventors and patent holders of VoIP (Voice over IP) technology. In contrast to all the others, Celsius did its fundraising partly through an ICO and thus also has its own coin. Accordingly, some advantages are only made via this coin, which can be very annoying in many cases. Celsius Network tries to do a kind of crypto peer to peer lending and to create transparency, but this does not work completely, even if it is a good step in the right direction. The user experience is completely different to all the others, because here you have to do everything via their app — which is always that simple.

  • Celsius works with BitGo, and also has the previously discussed $100,000,000.00 insurance with Lloyd’s
  • Weekly payment of the interest earned — this is faster than with any other provider
  • Partial transparency
  • Own token sometimes very annoying
  • Some minimums for better returns
  • Insurance up to 100 million USD, which is however only a fraction of the total amount.

5th Cake

Cake (www.cakedefi.com) is the youngest of the presented platforms and was founded by myself and my co-founder U-Zyn 2019. So even if I am partly biased here, I try to analyze objectively in all points — this can always be checked by the reader herself. U-Zyn and I have many years of experience in the field of cryptocurrency and wanted to hook on the disadvantages of the other platforms and turn them into our advantages. First and foremost, this means offering complete transparency that no other platform does. The motto here is: Trust, but verify. Additionally, since we have excellent contacts, we can eliminate pretty most of the third party partners and thus optimize the returns for our customers and always try to offer the best return on investment. Furthermore, the ease of use is extremely important to us. We also offer a security fund, but it has to be said that we are the youngest platform and of course we have the shortest track record.

  • Complete transparency
  • Simple usability
  • Internal security fund, similar to Binance
  • Currently, only Bitcoin and Ethereum on offer — more to come.
  • 1 month minimum

Conclusion

So if you summarize the options, you can create the following table:

Decision algorithm

You can see quite fast: None of the presented platforms is bad, quite the contrary — rather you have to think about what exactly you want:

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I build @CakeDeFi and I love @DeFiChain, EU Blockchain Advisor, Angel Investor, Washington Bureau Speaker, 5x Bestselling Author, Ex-Pro-Athlete, Ex-Medical-Doc

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Julian Hosp

I build @CakeDeFi and I love @DeFiChain, EU Blockchain Advisor, Angel Investor, Washington Bureau Speaker, 5x Bestselling Author, Ex-Pro-Athlete, Ex-Medical-Doc