Best Bitcoin Lending Platforms for May 2023

Bitcoin lending can be a great way to earn a yield on your BTC tokens. Your loaned BTC is then borrowed by others who pay you interest on your funds.

• Lending Bitcoin is a good way to earn passive income while retaining ownership of your tokens.
• The yield earned when you lend Bitcoin tends to be lower than the yield on lending stablecoins, but it’s still worth it for many BTC holders.
• Centralized exchanges make BTC lending easy, but to lend BTC through DeFi, you can use "Wrapped" Bitcoin (WBTC), which can be traded on smart-contract networks like Ethereum, Arbitrum, Polygon, or Solana.

Bitcoin lending is when you lend out your BTC and receive interest payments on your loaned funds. Just as in the traditional finance world, some people have assets they want to put to work, and some people want to borrow. Bitcoin lending platforms help pair lenders with borrowers so you can lend Bitcoin while managing your risk.

Bitcoin lending, similar to traditional lending, is normally done through centralized institutions that act as intermediaries by finding borrowers for your loaned funds. These platforms will then pass on the interest of these loans to you as yield rewards (after taking an intermediary cut, of course).

Any time you lend your Bitcoin out, you will earn interest on it in the form of Annual Percentage Yield (APY). This works similarly to traditional APY savings accounts at banks. However, crypto APYs are normally higher than APYs at traditional banks — largely because of the higher risk profile of crypto.

APY accrues during any period of time when your Bitcoin has been deposited to a lending service. To maximize APY, some lending platforms require that your Bitcoin is locked up for some period of time, during which you will not be able to use or withdraw your BTC tokens.

Your loaned Bitcoin is provided to Bitcoin borrowers. Unlike traditional financial institutions, which determine the creditworthiness of a borrower through factors like a credit score, crypto loans require borrowers to deposit collateral to guarantee that loans can always be repaid.

This means that you won’t have to worry about losing your loaned funds in the case of borrowers defaulting since the crypto loans originated with your funds are almost always entirely secured by collateral.

Next up: How to make money with Bitcoin lending. Let's start by choosing a platform.

Not all lending platforms are built the same. While they all provide some return on invested tokens, there are major differences in APYs, lockup terms, supported assets, and a host of other factors.

Some of the main things to keep in mind when selecting a Bitcoin lending platform:

• Interest Rates (APY): Each platform will offer a different APY for your loaned crypto. It’s important to compare these rates and weigh them with your other considerations.
• Fees: As intermediaries, lending platforms will take a cut when lending out your funds. These fees are often baked into the interest they pay out and are not always explicitly displayed as fees. It is important to compare any platform costs, however, and be aware that higher APYs may have hidden fees lurking.
• Platform Reputation: When you loan out your crypto, you are entrusting it to a third party to custody it. Any time your funds leave your wallet, it’s important to consider the security of the platform holding your funds. While rare, platform instability can sometimes wipe out deposited client funds.
• Yield Terms: Each platform has its own schedule for paying interest yield and handling new inflows of funds. Some pay interest once a month or once a week, while others process interest payouts daily. Some platforms allow more funds to be added to your lending account at any time, while others only allow this during certain periods.
• Lockup Requirements: Some platforms require you to lock up your crypto for a fixed amount of time while it’s being loaned out. Usually, lockup periods provide a higher APY compared to lending terms, where crypto can be retrieved at any point.

Our pick for a US-friendly BTC lending platform is Cake DeFi. Below we outline how to sign up for Cake DeFi step-by-step.

Step 1: Navigate to the Cake DeFi website and log in to your account or sign up if you don’t yet have an account.

Step 2: Once you’re logged in, navigate to the “Lending” dashboard. Here you will be able to view the expected APYs and batch information for BTC.

Step 3: Use the “Details” button to view more detailed information about each batch. Make sure you are familiar with the batch process before proceeding.

Step 4: Once you’re ready to lend your BTC, click the “Enter” button and specify the amount of Bitcoin you would like to lend. After completing this step, your Bitcoin is loaned to Cake DeFi and will start earning yield.

Step 1: Head to https://cakedefi.com/ and log in or sign up.

Step 2: Search for Bitcoin in the Balances section of your dashboard and click Deposit next to it.

Step 3: Scan the QR code from your mobile phone (if you're transferring from another mobile crypto wallet or exchange) or copy and paste the address displayed on the screen into your exchange or online wallet and transfer BTC to the address.

Step 4: The BTC you transfer will immediately reflect on your Cake DeFi account, and you can deposit it into one of the platform’s yield-generating programs and earn interest of up to 10% APY.

The Bitcoin lending rates or APY of your loaned Bitcoin will often depend on how long your funds are being loaned out. This length of time is known as the loan “term” and can either be predetermined or freely decided by you, depending on which platform you use to lend your crypto.

On some Bitcoin lending platforms, your loaned funds will be subject to a lockup period during which you will not be able to withdraw or use your BTC for any purpose. At the end of the loan term, your funds will be released. During predetermined loan terms, some platforms will distribute interest yield that is available to withdraw immediately even while the principal of your loan is still locked up.

Lending platforms that do not require a lockup allow you to deposit or withdraw your BTC at any point. Whenever your tokens are deposited on these platforms, they start earning interest immediately, and whenever you withdraw them, they stop earning.

As with any yield-bearing activity in crypto — or in traditional finance — there is no reward without some risk. The main risks of lending out your crypto are:

• Asset Lockup: Many lending platforms impose a lockup period on your crypto. This means that any time your assets are loaned out, they cannot be withdrawn or sold. Lockups can be a disadvantage during significant market moves when you may be able to sell your crypto to realize gains greater than the lending APY, or — in the case of large negative price moves — when you may need to sell to limit your downside. For this reason, lending just to receive the APY is not always a good idea, as the unpredictability of the market can quickly erase any projected profits.
• Platform Risk: The crypto space is notorious for platform hacks and insolvencies. There are numerous crypto lenders — even some of the biggest companies in the space — who have experienced severe drains of client funds and temporary insolvencies. There have even been large lenders who have gone bankrupt and taken client funds with them. Unlike traditional finance, where bank account deposits are secured by governments, in crypto, your funds are never fully guaranteed. Keep this in mind when lending.
• Regulatory Concerns: The regulatory landscape for crypto is always evolving. Given how new the space is, there is still a lot of room for sweeping legislation that makes lending unviable or requires traders to be registered as accredited investors. It’s not far-fetched to consider that there may be some situations where the regulatory environment under which you loaned your crypto is different from the one you find yourself in by the time your loan term expires.

Below are our top 2 picks for the best Bitcoin lending platforms. The table below compares and contrasts these centralized platforms.

Cake DeFi is a leading lending platform available to crypto holders in the US. Signing up for the platform requires an identity verification process, but once you’re verified, you have access to their lending, borrowing, and earning products.

Batches

Cake DeFi has a unique approach to providing loan returns. The platform collects funds from users across batches that are then loaned out through the Cake DeFi borrowing service. Each batch takes in a set amount of user funds and guarantees some minimum return 4 weeks later. New batches are launched every week.

The actual return can be higher than the guaranteed base return depending on how Bitcoin does during the period when the batch is loaned out. Cake DeFi’s Bitcoin batches guarantee a base APY of 2.5% and go up to 3.75% if Bitcoin grows in price by more than 20% during the batch period. If Bitcoin experiences a very significant price increase during the 4-week batch period, lending returns for batches can be as high as 5%.

The Cake DeFi lending interface is shown below. You can enter funds at any time leading up to the beginning of a batch as long as there is still space in the batch and the cap of 1,500 BTC has not been reached.

Earn

Cake DeFi also offers an Earn product that can provide larger returns on Bitcoin funds, with APYs of up to 10%. The Earn product combines the best of lending with liquidity mining — a process by which your funds are used to provide liquidity to traders looking to trade BTC. Keep in mind that part of the reason the Earn product offers higher APYs is that it is riskier and more correlated with crypto volatility.

How to Lend BTC via Cake DeFi

Step 1: Navigate to the Cake DeFi website and log in to your account or sign up if you don’t yet have an account.

Step 2: Once you’re logged in, navigate to the “Lending” dashboard. Here you will be able to view the expected APYs and batch information for BTC.

Step 3: Use the “Details” button to view more detailed information about each batch. Make sure you are familiar with the batch process before proceeding.

Step 4: Once you’re ready to lend your BTC, click the “Enter” button and specify the amount of Bitcoin you would like to lend. After completing this step, your Bitcoin is loaned to Cake DeFi and will start earning yield.

Read our full Cake DeFi review.

Nexo is one of the most forward-thinking companies when it comes to lending and borrowing. Their Bitcoin lending rates start at 3% APY and go up to as high as 7% for holders of the NEXO token who take their APY rewards in NEXO token and lock up their Bitcoin for at least 1 month.

NEXO Token

The core of the Nexo ecosystem is their platform-native NEXO token. The platform provides several loyalty tiers for NEXO holders depending on how much of their portfolio is in NEXO tokens. These rewards range from higher APYs on lending to better terms when borrowing and a whole host of other platform-specific benefits.

Below is a breakdown of the BTC lending rates for different tiers of NEXO holders:

As shown in the table above, APYs are higher when BTC is locked up for a longer period of time and when interest is paid out in NEXO tokens rather than in BTC. Your Nexo loyalty tier — which is determined by what percent of your Nexo portfolio is in NEXO tokens — also makes a big difference on payouts. After optimizing for all of these factors, your Bitcoin APY can be as high as 7%.

It’s important to note that when choosing to receive your interest payouts in NEXO rather than in-kind (in BTC), you are exposing yourself to the price volatility of the NEXO token. This means that while you net a higher interest rate, your overall earnings may be lower if the NEXO token price drops significantly. This exposure also applies when you buy NEXO to upgrade your loyalty tiers. As with all financial yield, greater reward comes with greater risk, so keep this in mind when weighing your options.

How to Lend BTC via Nexo

Step 1: Head to https://nexo.io/ and sign in or create an account.

Step 2: Head to the Assets section of your dashboard and select BTC– you’ll see the specific interest rate that Nexo offers.

Step 3: Click Top Up on the pop-up menu that comes up after selecting BTC. Select the amount of BTC you want to lend, and you'll start earning interest the next day.

Read our full Nexo review.

Crypto lending is similar to a money market in traditional finance. The interest you receive from lending Bitcoin is taxed as regular income. Most exchanges will track your profits and provide you with organized tax documents at the end of each year, which will allow you to easily report your income from lending.

To better understand your tax liability when you lend Bitcoin, let’s look at a specific example.

If you lend out $20,000 worth of Bitcoin at a yearly APY of 3%, you will end up with $20,600 after 12 months (ignoring Bitcoin price fluctuations).

In this case, you have earned $600 in interest.

The IRS treats this $600 as income, and it will be tacked on to the rest of your income for the year. Depending on your tax bracket, you will pay a marginal tax rate on this $600, along with the rest of your income accordingly.

Bitcoin appreciation also incurs a capital gains tax when Bitcoin is sold. Keep in mind that you are also liable for taxes on the amount that your lending yield has appreciated in price after you have received it.

Centralized exchanges are not the only way to lend your Bitcoin. You can also use Decentralized Finance (DeFi) solutions to lend out your BTC. In DeFi, you are still lending to borrowers. However, you are lending more directly and without going through an opaque exchange.

The only third party you go through is a DeFi platform that finds borrowers for your funds, facilitates the transaction, and ensures each party holds up their part of the deal.

In DeFi BTC lending, Bitcoin lenders lend BTC through a lending pool, much like a money market. Borrowers borrow from the pool as needed, paying interest on the borrowed Bitcoin. You'll earn interest that varies based on borrowing demand relative to the supply.

DeFI platforms are automated and governed by code in the form of smart contracts written on the Ethereum blockchain or another smart-contract blockchain.

It’s important to note that in order to trade BTC through DeFi, you will need to convert it to “wrapped” Bitcoin (WBTC). WBTC is an Ethereum-compatible token that represents Bitcoin.

As an option, you can buy wrapped Bitcoin on an exchange like Coinbase or Binance — or you can swap other cryptos like ETH for WBTC on decentralized exchanges like Uniswap.

Once you have Wrapped BTC, lend the WBTC on platforms like Aave or Compound if you choose. You're lending Bitcoin as a token rather than BTC itself.

The price of WBTC is usually the same as the price of BTC, so it is an accurate proxy for the BTC asset. Once your DeFi lending completes, you can convert your WBTC back to regular BTC.

Lending Bitcoin can be relatively safe, but don't start clicking buttons just yet. There are several considerations to weigh before you lend Bitcoin.

There are also some ways to mitigate potential risks, depending on whether you use a centralized Bitcoin lending platform or choose the DeFi route.

Centralized Bitcoin Lending Platforms

• You don't have custody of your Bitcoin. When your lend BTC through a centralized lender, you have to send your BTC to the platform. This means you might not be able to withdraw quickly. Lending platforms often require you to commit to a lending term — and the lender could pause withdrawals (or file for bankruptcy).
• Market volatility can cause a loss. Most centralized Bitcoin lending platforms require collateral for the loan, but if the collateral crashes in price, the lender may be unable to sell the collateral quickly enough. The result: you might get less than 100% of your loaned funds back.

Do your research before you transfer your BTC to a third party. Also, consider how much of your Bitcoin you want to lend. It may be wiser to lend a small portion of your BTC rather than your whole stack.

Decentralized Bitcoin Lending Platforms

• Smart contract exploits can cause a loss. DeFi lending platforms let you lend Bitcoin by committing WBTC to a smart contract, which is just computer code that runs on the blockchain. Exploits against the code itself or against other smart contracts with which the code interacts can cause losses for lenders in a number of ways.
• Oracles are sometimes slow to report prices. An oracle is a connection with the outside world that brings in price data for lending smart contracts. This price data tells the contract when it's time to liquidate the collateral to pay a loan with a low health factor. If the data is slow, liquidations may not happen on time, and lenders could suffer a loss.

Before you connect your wallet to a DeFi lending platform, check to see if the code has been audited and by whom. You can usually find the information on the app's website itself or on Discord if the app maintains a channel.

As with centralized lenders, it's often best to dip a toe in the DeFi lending water rather than dive in head first. Consider diversifying to earn a yield through multiple sources instead of betting it all on one Bitcoin lending platform.

Lending Bitcoin is a great way to earn some passive income on your Bitcoin. It’s not without risks, however, and it’s important to weigh your risk tolerance when considering different lending platforms.

BTC Lending can be a good idea when you have unused Bitcoin sitting around, and you are confident that the price of it will not fall significantly. Keep in mind that, on some platforms, once you loan out your Bitcoin, you will not be able to move it out until the lending period is over.

• How much does BTC lending cost?

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  BTC lending has certain fees associated with it that are paid to the intermediary platform that finds borrowers for your funds. These fees, however, are normally taken out of the APY rewards you receive, rather than being explicitly outlined. When lending, look at the top-level APY to determine how much you will earn.

  
  

• Can I borrow against my BTC?

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  Yes. You can take out a crypto loan that uses your BTC as collateral in exchange for fiat cash, stablecoins, or other cryptocurrencies. Find out more about borrowing here.

• Where can I lend Bitcoin?

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  Platforms like Cake DeFi and Nexo provide a yield to lenders looking to lend their Bitcoin. As an alternative way to lend Bitocin, you can lend WBTC, a tokenized version of Bitcoin, on DeFi lending protocols like Aave or Compound.

• What are the BTC lending rates?

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  BTC APYs generally range from 2.5% to about 7%, depending on the platform, the lockup period, and in which tokens you earn your rewards.

• What is the best BTC interest rate?

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  For borrowing, BTC interest rates range between 8% and 14%. Find out more about borrowing here.

• How do you earn interest on BTC?

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  You can earn interest on your BTC by lending it out through various lending platforms. Annual percentage yields (APY) on BTC range from 2.5% to about 7%, depending on the platform you use to lend.

• What is the yield of Bitcoin lending?

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  The yield in Bitcoin lending refers to the interest you earn when you lend Bitcoin. These interest earnings, usually expressed as an annual percentage yield (APY), can range from 1% to as high as 7 or 8%.

  Often, interest rates on the higher end of the range indicate a supply/demand imbalance on the platform. In other cases, a higher yield might be because part of the yield is paid in other tokens.

• Where is the best place to lend Bitcoin?

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  If you're inside the US, your options for lending Bitcoin center on decentralized finance applications like Aave, Compound, and others. US regulations limit Bitcoin lending through centralized exchanges, such as Nexo.

  • Investors outside the US can consider Nexo for BTC lending.
  • Investors inside the US or in most parts of the world can consider lending Bitcoin through DeFi lending platforms, such as Aave ort Compound. In this case, you'll need to lend WBTC, a tokenized version of BTC that can be used on smart-contract networks like Ethereum.