Best DAI Lending Platforms For December 2023
Key Takeaways
- DAI is a stablecoin created by 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 options that will allow you to lend out your DAI to borrowers, but not every platform will be a good fit for every lender.
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. 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 stablecoin created by Maker, and it has long been a top choice among crypto users. Maker users can lock supported collateral, including ETH, WBTC, USDC, and BAT, 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.
A stablecoin is a digital currency that’s tied to the price of a fiat currency, commodity, or another cryptocurrency. Typically, stablecoins are pegged to government-sanctioned currencies, like the U.S. dollar.
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 exchange. DeFI lending means that your tokens are offered to borrowers on a decentralized exchange. 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 are. 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, too. 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
- User-friendly, especially for new users
- Tax reporting is streamline
- Fast deposits and withdrawals
- Heavy focus on security
Cons
- Custody stays with the exchange
- Fees tend to be higher
- Tedious verification process
Pros of CeFi DAI Lending
- 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.
- 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.
- 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.
- 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
- 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.
- Fees tend to be higher: You’re paying for convenience on a CeFi platform in the form of higher fees. Most exchanges charge you to transact in any way, whether it’s offering your tokens to a liquidity pool so borrowers can use them or making any other moves on the exchange.
- 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 for DAI lending via peer-to-peer 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
- Crypto user retains token custody
- No verification (KYC) process
- Transactions are on a peer-to-peer basis
- More flexibility
Cons
- Requires at least some crypto experience
- Security can be a concern
Pros Of DeFi DAI Lending
- Crypto users keep custody: Offering custody of your tokens to an exchange comes at a risk. With DeFi DAI lending, you retain custody of your tokens, which means you retain control of your crypto assets — even when a borrower is using them.
- 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.
- 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.
- 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 for DAI lending. This offers more flexibility than what centralized platforms might offer.
Cons Of DeFi DAI Lending
- 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.
- Security issues: DeFi lending, whether it’s DAI or otherwise, 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, 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
Yes, lending your DAI is generally safe. However, there is always some risk when you’re transacting with crypto tokens, whether you’re using a centralized or decentralized platform to do so. As long as you do your homework, though, the risks are typically minimal and it is generally safe to lend your DAI to borrowers.
It depends. Whether you should lend your DAI or not to borrowers is a personal question. Lending your tokens can be a great way to earn interest on your tokens, but it may not be the right choice for everyone. If you’re going to need access to your DAI in the near future, or if you’re concerned about the risk associated with lending your tokens, you may want to take a different route. Otherwise, lending your DAI to other crypto users may be a good fit.
There are numerous options for lending your DAI to borrowers, but Aave is often a smart place to start if you’re looking for the best place to lend your DAI. That said, other platforms, like Ledger and Oasis, can also be a great place for DAI lending, so compare the options to determine what works best for you.
It depends. Each platform offers its own rate on lending, and the demand for certain tokens will also impact the rates you can earn on your crypto. Your best bet is to compare the rates offered by a few different exchanges to determine which platform will offer you the highest returns on your DAI tokens for lending purposes.
Yes, you will probably owe taxes on the interest you earn from lending out your DAI. While stablecoins like DAI are stablecoins aren’t fiat currency — they’re created to be equal to the value of the U.S. dollar — they are still subject to taxation and you will likely owe on the profits you make.
