Best DAI Lending Platforms

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Key Takeaways

• USDS (formerly DAI) is a stablecoin created by Sky (formerly Maker), and it is one of the top choices among crypto users.
• Crypto holders who want to earn on their tokens may find it beneficial to lend out their DAI in return for interest from borrowers.
• There are numerous platform that will allow DAI lending, but not every platform will be a good fit for every lender.

Update: DAI has been rebranded to USDS

The OG DeFi crowd still calls it DAI, but the new kids are already saying USDS. Why?

Because the whole company has been through a major overhaul. There's two things you need to know:

• Maker is now Sky
• The OG stablecoin $DAI has been rebranded to $USDS

In this article, we’re sticking with the old terminology for now - but moving forward, we’ll be using Sky and $USDS (once our brains catch up to the rebrand).

How To Earn Interest With DAI Lending

While crypto enthusiasts have their choice of crypto exchanges to choose from, one of the more popular platforms is Maker (a key asset in the Milk Road PRO Portfolio). While the functionality and features of the Maker platform are a large part of what draws in new users, there’s another big benefit for Maker fans: access to DAI.

DAI is the decentralized stablecoincreated by Maker, and it has long been a top choice among crypto users. Maker users can lock supported collateral, including ETH, WBTC, and USDC in order to mint new DAI, and their collateral is unlocked when the loan is repaid. One of the incentives is that anyone can mint new DAI, and the flexibility to create DAI with certain assets is increasing by the day.

Maker’s prominent role in the larger DeFi ecosystem helped make DAI the de facto stablecoin — which is one reason why this coin is so valuable for crypto users in the lending space. Plus, the DAI Savings Rate – which is a passive interest-earning opportunity – is widely considered to be the sector’s risk-free rate. Here’s what you need to know about DAI lending, the benefits, downsides, and other important information.

What Is DAI Lending?

When you lend DAI, you’re offering some or all of your DAI tokens to borrowers in return for interest payments on the loan. By offering your DAI to borrowers, they get access to the tokens they need to complete trades or other transactions. You, on the other hand, maximize your returns on your tokens by interest payments from the borrowers who use them.

Lending your DAI on an exchange can be an excellent way to earn on the tokens you’re planning to hold long-term.Your tokens will almost certainly be safe in the hands of the borrowers thanks to the safety measures all exchanges put in place, and you’ll get to watch your balance grow while you wait.

That said, lending DAI isn’t without risk. Borrowers are required to put up collateral in order to borrow tokens, at least in most cases, but that may not be a total guarantee. There may still be a few risks to consider when lending out DAI to borrowers.

How Does DAI Lending Work?

DAI lending works similarly to all other types of crypto lending. You as a DAI holder offer your tokens to other crypto users on an exchange and are later paid interest and your tokens in return.

There are a couple of ways you can lend out your DAI: CeFi lending and DeFi lending. CeFi lending means that you’re offering up your DAI tokens through a centralized platform. DeFi lending means that your tokens are offered to borrowers on a decentralized protocol. Both options have similarities, but there are some differences worth noting.

Most crypto lending of any kind is done on centralized platforms, in part because CeFi exchanges are much more user-friendly than DeFi exchanges. On the other hand, DeFi DAI lending requires a deeper understanding of crypto in general, so it’s typically not the best route for novice crypto users. Here’s what you need to know about both options.

CeFi DAI Lending

Overall, the learning curve is much easier to handle on a centralized exchange, which makes CeFi DAI lending the more popular option. One of the big benefits to CeFi platforms is that the crypto is easily and readily available on the platform, and there’s no need to move it after it’s purchased. You can keep it right in your account on these platforms.

But it’s not just the buying side of things that tends to be easier. DAI lending is also typically easier on a CeFi platform. These platforms vary, of course, but many of them offer easy routes to add your tokens to liquidity pools, which buyers can then borrow from. In return, you’ll receive your interest payment directly to your account on the platform.

Many CeFi platforms also reward users with big interest rates on the tokens they offer to the exchange, which is another draw. If you’re looking for a lucrative way to lend out your tokens, a CeFi platform may offer it. However, the rates you’re paid will depend on the exchange and the tokens, as well as the loan terms.

Pros And Cons Of CeFi DAI Lending

Pros of CeFi DAI Lending

1. It’s user-friendly: Crypto transactions can be complicated, and that’s especially true for new users, who are learning new terminology and new transaction processes simultaneously. A CeFi platform makes it a lot easier to navigate, though — especially when it comes to lending.
2. Streamlined reporting: Transactions have to be reported to the IRS, and CeFi platforms make it easy to track your transactions. That, in turn, makes it easier to navigate tax season when it comes to your crypto holdings.
3. Fast deposits and withdrawals:The process to withdraw, deposit, or otherwise transact tends to be faster on a centralized platform. That matters to certain types of users — especially when it comes to trading tokens.
4. Security: There are tons of security measures in place for most CeFi platforms, and lending is no exception. That can make it safer and more secure to lend out your DAI to other users.

Cons Of CeFi DAI Lending

1. The exchange has custody of your tokens: When you use a centralized exchange to lend your DAI to borrowers, the exchange retains custody of your tokens. That can be a bit risky since your tokens are at the mercy of the platform. If the platform collapses, your tokens go with it.
2. Fees tend to be higher: You’re paying for convenience on a CeFi platform in the form of higher fees. Most exchanges charge you for every transaction. Whether it’s offering your tokens to a liquidity pool or making a swap, there are usually fees involved.
3. Tedious verification process: Centralized platforms are required to verify your identity as part of the Know Your Customer process. That can mean long waits and laborious verification processes. At minimum it means you’ll be offering up personal information to the exchange to prove you are who you say you are. That won’t be ideal for some users who prefer anonymity.

DeFi DAI Lending

DeFi lending, on the other hand, puts the focus on fewer laborious processes. These exchanges don’t require accounts to be created but still allow you to lend DAI via peer-to-peer (P2P) transactions. Unlike CeFi lending, there are no laborious verification processes to contend with, which can streamline the setup process, as these exchanges aren’t required to follow the KYC requirements.

That can be a great fit for certain types of users, but new users will likely struggle with these types of exchanges. They aren’t nearly as user-friendly as CeFi exchanges, and there may be other downsides, too.

Pros And Cons Of DeFi DAI Lending

Pros Of DeFi DAI Lending

1. Crypto users keep custody: Offering custody of your tokens to an exchange comes at a risk. With DeFi, you retain custody of your tokens, which means you retain control of your crypto assets — even when a borrower is using them.
2. No verification process:Unlike CeFi platforms, DeFi exchanges don’t have to verify your identity. That makes it easier and quicker to get started with DAI lending, provided you know how to use these types of platforms. It also keeps the process truly anonymous, which is a big benefit for certain types of users.
3. Peer-to-peer transactions:Rather than using the exchange as the middleman, DeFi lending occurs on a peer-to-peer basis. This removes the third party from the equation, which is preferable for many types of users.
4. More flexibility:There aren’t typically minimum lending requirements on DeFi platforms, which means you can lend some or all of your tokens, depending on your level of comfort and your goals. This offers more flexibility than what centralized platforms might offer.

Cons Of DeFi DAI Lending

1. Crypto knowledge required: It’s really tough to navigate DeFi platforms unless you have at least some crypto experience. That can make this a less viable option for newer or novice crypto users, who will likely struggle to learn the nuances of these types of platforms.
2. Security issues:DeFi lending, whether it’s DAI or another token, tends to be at higher risk of security issues. Real security threats aren’t terribly common, but issues related to hacks are still a threat.

Final Thoughts On Lending DAI

If you have some DAI tokens in your wallet that you won’t need to access in the near future, it may benefit you to offer those tokens to borrowers in return for interest payments. Doing so can be a safe and lucrative way to earn on the crypto that’s sitting in your wallet. However, lending DAI to other crypto users may not be the right move for everyone. If you want to explore this route, make sure to find the right platform with the right APY to help you meet your goals. Otherwise, it may not be worth the hassle.

Frequently Asked Questions