Lending platforms increase TVL amidst a bear market scenario
DeFi Lending platforms across several blockchains are experiencing a surge in user activity and deposits as traders look to maximize the earning potential of their crypto assets in a bear market scenario. A relatively new idea in DeFi is helping to turn a bear market for traders into a bull market for lenders.
Crypto lending refers to a type of decentralized finance that allows investors to lend their cryptocurrencies to different borrowers to get interest payments in return. Rewards can float between 1% and 20% on various platforms and higher for certain coins. Many platforms specializing in lending crypto also accept stablecoins pegged to the US dollar.
In essence, we are highlighting the availability of lending options for cryptocurrency holders with bigger pots and no intention to sell in the foreseeable. Lending crypto for percentage gains can form a solid arm to any investment strategy amidst unfavorable trading conditions. To further prove the point, we can look at DeFi lending protocols on several blockchains to see if the effect is universal or contained to certain networks or dapps. Arguably, platforms offering the best rewards attract attention but are not always the safest options.
Aave is perhaps the most recognized lending protocol on the market and offers a decentralized money market platform where depositors earn interest by providing liquidity to lending pools, and borrowers obtain loans by tapping into these pools. It also operates across multiple blockchains including Ethereum and Polygon. TVL in Aave is currently $18.53 billion of which $6.44 billion or around a third is tied up in lending. While other platforms analyzed below are starting to gain traction in lending, Aave has been leading the scene for some time, almost doubling its TVL every quarter for the last year. Aave has increased its TVL from $5.23 billion on March 9, 2021, to more than $18 billion at writing.
Interest rates for lending depend on the asset being lent out and change frequently so it’s important to scan the offers thoroughly and choose based on your own requirements.
For example, currently depositing feiUSD, a stablecoin pegged to the US dollar can reward a little over 8% APY, while staking Sythetix native token will earn depositors 5.5% APY.
Anchor is a lending protocol on the Terra blockchain that increased its TVL in lending from $1.23 billion at the start of February 2022 to $2.68 billion at writing. More than doubling the figure in around six weeks, showing a strong appetite by holders to leverage their assets using Anchor. The current lender APY rate is 19.5% on the Terra Stablecoin UST, meaning a deposit of $1000 could yield a profit of $195 minus any applicable fees. Arguably a far safer position than taking risks in a bear market.
Solend is an algorithmic, decentralized protocol for lending and borrowing on Solana with a total value locked of over $932 million, of which $338 million, or more than a third, is tied up in lending. The platform is more flexible than Anchor and allows lenders to deposit several coins, including USDC, ETH, and SOL. APY rates on each token differ and change almost daily, with some having multipliers and further rewards included. It’s worth doing some solid research to assess the best positions.
For example, currently depositing Solana’s native token SOL can earn depositors around 30% APY while depositing SLND, the token of the Solend platform can earn depositors around 26% APY. This one of the more dynamic lends as rewards come in multiple forms and combined add to 26%. 1.08% Supply APY + 23.81% SLND rewards + 1.19% SLND options.
Maple is a lending platform on Ethereum that allows lenders to generate yield by lending to institutions in the crypto sector. Each lending pool funds loans to numerous borrowers, offering lenders access to diversified exposure. Moreover, Maple is also a set-and-forget solution for lenders, as pool delegates conduct due diligence on borrowers and manage the pools. The total value locked in the platform has risen from $527 million at the start of February to $684 million at writing.
Users can search the numerous lending pools to find a good fit with their ambitions, deposit various tokens, then sit back. The highest APY available currently is 18.5% on USDC deposits to the BlockTower Capital pool, while at the other end of the scale, lenders can earn 3.7% APY in the Celsius wETH pool.
Arguably this platform holds more weight for lenders as money is lent to institutional investors rather than individuals and may come with less risk. Additionally, the fact it’s on Ethereum means the fees involved in any activity on Maple are pretty high currently, meaning smaller investors may steer clear and head to platforms such as Solend, where costs are much less.
Earning in a downturn
Cryptocurrencies are now more dynamic and valuable than ever before. In 2017 when the markets collapsed, people had no choice but to HODL or sell. Now, just five years later, we have an entire dapp ecosystem spanning multiple blockchains and thousands of dapps. Most provide utility and value to investors with no intention of bailing on crypto. Instead, lending assets to others for rewards appears a solid bet in a bear market scenario.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, ENS, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.