Best ETH Lending Platforms December 2023

What Is ETH Lending?

ETH lending is the process of making your Ethereum available for others to borrow. If you hold Ethereum, you can lend your ETH to earn a yield. And the interest you earn from lending ETH can earn even more interest, compounding your return. Borrowers pay interest on these ETH loans, which is what makes up the yield you receive.

How Does Ethereum Lending Work?

Ethereum loans use a peer-to-peer system where lenders on one side lend money to borrowers on the other. Borrowers then pay interest to the lenders. Simple enough, but how can you loan Ethereum?

The simplest way is to use a centralized lending platform like Nexo (lending not available in the US). You can also use decentralized ETH lending protocols, like Aave or Compound. We’ll cover those in a bit.

ETH lending platforms connect lenders and borrowers. They also hold custody of crypto assets, monitor collateral and loan values, and often provide additional rewards to incentivize the use of their platforms.

To make lending easy, these platforms often set fixed lending interest rates.

The interest earned on lending is known as the Annual Percentage Yield (APY). When you see the term “ETH lending rates,” think APY. An APY takes compounding into account.

Remember, the interest you earn by lending ETH also earns interest.

ETH lending platforms may also have terms for lenders, including lockup periods that require your funds to stay illiquid while they’re being loaned out.

Crypto loans are almost always over-collateralized loans. While traditional lending platforms consider factors like credit score when issuing loans, crypto platforms require that borrowers put up collateral that exceeds the amount they want to borrow.

This structure allows borrowing without credit and identity checks and gives lenders peace of mind knowing that their loaned funds are secured by collateral from the borrower.

It also means borrowers can’t get an ETH loan without collateral or without enough collateral.

Ethereum can be loaned out either through centralized (CeFi) companies or through decentralized finance (DeFi) protocols.

• The centralized companies guarantee a certain base APY and may provide extra features and individualized support.
• DeFi ETH lending protocols connect borrowers and lenders and let the market determine APYs in real time.

Top Ethereum Lending Platforms

Here are our picks for the top Ethereum lending platforms.

Cake DeFi

Cake DeFi is one of the few crypto lending platforms available to investors in the US. The sign-up process requires you to go through a know-your-customer (KYC) process, and once your identity is verified, you have access to Cake DeFi’s lending, borrowing, earning, and other products.

Lending On Cake DeFi

Batch Lending

The Cake DeFi platform takes a unique approach to lending by using their “batch” system. All funds lent through the platform go into one of several parallel “batches.” These batches have a fixed term of 4 weeks, during which time the funds in the batch are lent out and cannot be withdrawn. At the end of the batch term, your funds are available to withdraw along with accrued interest.

New batches are started every week, and you must wait for a batch to start in order to loan out your funds. Each batch guarantees a certain “base APY” that is paid out regardless of how the price of Ethereum performs during the batch period.

APYs can also be greater than the base APY if ETH goes up in price during the duration of the batch. The bonus APY rewards are 3.75% if ETH appreciates approximately 20% during the batch term and as much as 5% if ETH appreciates significantly more during the batch term.

Below is a visual of the Cake DeFi lending interface that displays the batch start and end times as well as the quantity of funds committed to the batch. Funds can be added any time up to the starting point of the batch as long as the batch has not reached its funding limit (displayed below).

Cake DeFi Earn

The platform provides an “Earn” product which offers returns up to 10% on your invested Ethereum funds. According to Cake DeFi, the Earn offering is a combined lending and liquidity mining product that generates higher yields.

Liquidity mining is a process of providing your ETH as liquidity to traders looking to trade assets for ETH. Keep in mind that this means Cake DeFi’s Earn feature is not purely lending and thus incurs a larger risk for deposited funds.

Pros And Cons Of Lending ETH With Cake DeFi

Read our full Cake DeFi review.

How To Lend ETH Via Cake DeFi

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

Step 2: After entering your account, head over to the “Lending” option under “All Products”. This dashboard will show you the four assets available on the platform as well as their expected APY and batch information.

Step 3: To learn more about Cake DeFi’s unique “batch” approach to lending, click the “Details” button. It’s critical you understand how this works before proceeding.

Step 4: After you’ve reviewed the lending documents, click the “Enter” button under “ETH Lending” to begin the process of lending your ETH. Specify how much ETH you would like to lend, and after completing the process, your ETH will be lent out.

Nexo

Nexo is a fully featured crypto platform that maintains an exchange, crypto lending and borrowing, a crypto Mastercard, and a very popular platform-native token called NEXO. In fact, holding the NEXO token is critical to getting the highest ETH lending rates available through NEXO, which are between 4% and 8% APY.

ETH Lending On Nexo

The NEXO Token

The Nexo platform supports a platform-native token called NEXO that is used to provide bonuses across most of the Nexo products. The more NEXO you hold, the better bonuses you receive on products like lending, borrowing, and exchange trading. The platform has several tiers for NEXO holders that are broken down by how much of a trader’s portfolio is made up of NEXO tokens.

Here is a breakdown of the ETH lending APY by different NEXO tiers.

As shown in the table above, Nexo’s ETH lending APYs start at 4% and go to 5% if more than 10% of your Nexo portfolio is in NEXO tokens. Opting for a 1-month lockup on your loaned funds, rather than keeping them liquid, also adds a 1% bonus on top of your APYs. Finally, if you choose to take your interest yield in NEXO tokens rather than in ETH, you can earn between 0.25% and 2% more. After all bonuses, your ETH APY can be as high as 8%.

Please note: Holding NEXO tokens — whether to upgrade your loyalty level or when taking interest payments in NEXO — exposes you to the volatility of the NEXO cryptocurrency. Depending on the price of NEXO, you may or may not be better off than if you had stuck to the base tiers that do not require holding NEXO. It’s important to consider NEXO exposure as a calculated risk rather than viewing boosted APYs as a bonus with no downside.

Pros And Cons Of Lending ETH With Nexo

How To Lend ETH 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 ETH– 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 ETH. Select the amount of ETH you want to lend, and you’ll start earning interest the next day.

How To Pick An ETH Lending Platform

While most crypto lending platforms support major crypto assets such as Bitcoin and Ethereum, they often differ in some key ways:

• Reputation: Using centralized platforms like the ones covered below means that your crypto will be stored in the platform’s crypto wallets. It’s important to pick a platform with a stellar reputation, as you will be entrusting your hard-earned crypto to them for the duration of your lending period.
• Fees: For providing the lending service, these platforms take a cut. In contrast with other crypto instruments such as borrowing, however, lending platforms normally have their fees baked into the APY. This means that you won’t be explicitly paying any fees (and many platforms advertise their “zero-fee lending” services). However, the fees are coming out of the APY rewards you receive.
• Interest Rates (APY): While the demand for crypto assets can be averaged out across the industry, different platforms offer their own lending interest rates, often providing better APYs than what you can get through DeFi. For many, APY will be the most important consideration when looking to lend.
• Lockup Requirements: Some crypto lending platforms freeze your crypto assets while they’re loaned out — not allowing them to be withdrawn or used. Many platforms don’t have this restriction, but lockups generally increase APYs, so it’s an important feature to consider.
• Yield Terms: Different platforms might handle yield payouts in their own way. Some pay out daily, while others only pay yield once a month. Additionally, some platforms have a schedule of when they allow more money to be deposited for lending, while others allow deposits at any time that are instantly loaned out.

How To Sign Up For An ETH Lending Platform

Let’s take a look at how to sign up for a lending platform. In this example, we will be signing up for Cake DeFi, which is our pick for a US-friendly ETH lending platform.

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

Step 2: After logging in to your account, head over to the “Lending” option under “All Products.” This dashboard will show you the four assets available on the platform as well as their expected APY and batch information.

Step 3: To learn more about Cake DeFi’s unique “batch” approach to lending, click the “Details” button. It’s critical you understand how this works before proceeding.

Step 4: After you’ve reviewed the lending documents, click the “Enter” button under “ETH Lending” to begin the process of lending your ETH. Specify how much ETH you would like to lend, and after completing the process, your ETH will be lent out.

How To Transfer Your ETH To A Lending Platform

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

Step 2: Search for Ether 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 Ether to the address.

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

What Lending Terms Are Available?

Your ETH can be loaned out for different periods of time. This period of time is known as the loan “term.” Depending on the platform you’re using to lend, this term can be predetermined ahead of time or can be flexible. Some platforms offer lending with no fixed term where ETH can be withdrawn anytime.

During the loan term, your ETH will normally be subject to a “lockup.” This means that your tokens cannot be withdrawn or used for any other purpose while they are being loaned out. During this time, your tokens are earning interest. When your loan term is over, your funds will be released.

When it comes to interest payments, some platforms distribute interest earnings that can be withdrawn even while your underlying ETH is locked up. Others treat your interest and principal all as one sum that is unlocked at the end of your loan term.

Risks Of Lending ETH

Lending Ethereum is a great way to earn a moderate return on your unused ETH funds. However, as with all yield-bearing methods, it isn’t without risk. Here are some major risk factors to consider when loaning out your ETH.

• Platform Risks: Centralized ETH lending platforms store your funds using proprietary crypto wallets. This poses a potential security question since, if the platform is exploited through a vulnerability, your funds may be at risk. Additionally, several major crypto platforms have filed for bankruptcy in the past, and some have been unable to return client funds. It’s important to do your research and keep platform risk in mind when choosing lending platforms.
• Rehypothecation: Some centralized ETH lenders might be tempted to use your ETH deposits as collateral for other investments — which could spell calamity if they lose money or end up blowing up their business altogether (along with your ETH).
• Volatility of Prices: The crypto markets are always fluctuating in value, sometimes by double-digit percentages in a single day. This amount of volatility poses a price risk to any financial activities — including lending. While you may be earning 5%+ APY on your ETH loan, if, at the end of your loan term, ETH is down by 20%, your loan gains are wiped out by the overall price reduction. For loan platforms that lock up your funds, price volatility is an especially important concern, as you will not be able to sell your ETH if a significant price slide happens during your loan term.
• Regulatory Uncertainty: Crypto is a nascent space with a lot of open regulatory questions. In the past, there have been landmark regulatory decisions — such as the decision to treat certain tokens as registered securities — that have turned the entire space on its head practically overnight. This existential risk is important to keep in mind when considering lending.

ETH Lending Vs. ETH Staking

Lending and staking are both ways of earning yield on your existing ETH, but that’s about all they have in common. Lending earns yield by loaning out your committed ETH funds to borrowers who pay interest on their loans while staking earns yield by collecting network fees.

Here is a closer comparison of the two earning methods.

ETH Lending Taxes

The yield you earn from ETH lending is subject to taxes and is treated as income in the eyes of institutions like the IRS.

This means that whatever amount you earn in yield is tacked on to your personal income for the year.

For example, if you lend $10,000 worth of ETH at a 5% APY, your ETH will be worth $10,500 after one year (assuming ETH doesn’t fluctuate in price). This $500 you have earned in interest is taxable, just the same as if you had earned $500 through any other profitable activity.

While lending yield is taxed as income, crypto gains as a whole are subject to capital gains tax. So if you earn the $500 in yield interest and the price of Ethereum goes up, your $500 of interest (assuming it was paid out in Ethereum) will appreciate in value. The appreciation is subject to capital gains tax.

DeFi ETH Lending

The three platforms covered above are centralized platforms that participate in centralized finance (CeFi). The other option is decentralized finance (DeFi) ETH lending protocols that act as a crypto money market for lenders and borrowers.

DeFi platforms maintain automated markets using code to determine real-time lending and borrowing rates. As a result, ETH lending rates on DeFi fluctuate based on supply and demand.

The advantage of DeFi is that platform fees are much lower. And because DeFi protocols normally use open-source code and are managed by communities of token holders, DeFi protocols are much more transparent than the CeFi lenders.

DeFi lending can be profitable. However, it’s often more complex, so it’s generally more suitable for experienced traders.

DeFi ETH Lending Risks

We covered some general risks for lending ETH earlier. DeFi ETH lending protocols bring a few potential perils as well.

• Smart-contract exploits: Smart contracts are just computer code, which means the code might have bugs or allow people to do things that the developers hadn’t intended. Look for lending protocols that a third-party smart contract audit company has audited.
• Full utilization: If the lending platform is at full utilization for ETH, meaning all or nearly all of the ETH is borrowed, you won’t be able to withdraw until utilization falls. The good news is that you’ll earn higher ETH lending rates as utilization increases.
• Slow liquidations: This risk is shared with centralized lending platforms. DeFi lending protocols use oracles — apps that bring in data from the outside world — to monitor the value of collateral and loans. If the oracle is slow to report price changes, as can happen with sudden selloffs, the loans can quickly become under-collateralized, leading to potential losses for lenders.

How Do Crypto Lending Companies Make Money?

There have been multiple notorious bankruptcies and hacks in the history of crypto platforms. While most crypto platforms are totally safe to use 99.9% of the time, it’s important to understand where the yields that a platform promises are coming from in order to do your own risk assessments.

Crypto lenders have become better about disclosing how they generate their yield. However, many centralized platforms are still opaque compared to their DeFi counterparts. Generally, however, centralized platforms earn their yield through originating loans.

The interest paid on these loans may include some fee that is taken by the platform, and the rest is passed on to the lenders who actually put up the funds for the loans. Additionally, these platforms often charge fees on loan origination for borrowers, withdrawal of funds, and for trading crypto on their crypto exchanges.

To Sum It Up

ETH lending is a great way to earn passive income on your tokens that may otherwise be lying around unused. While lending is generally straightforward, it’s important to compare lending platforms to ensure that you are receiving the best terms and the best yield rewards for your funds.

Keep in mind that when lending your ETH, you will often have to lock up your funds for some period of time which leaves you exposed to large price fluctuations — if ETH drops significantly in price, you may not be able to sell immediately. Once you understand the lending risks, the benefits often make it worth the time you invested in doing your research first.

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George Hristov

Contributor

George is a tech writer interested in web3 startups and communities. In the dynamic world of crypto, he stays plugged into the day-to-day headlines, deep dives, and industry commentary.

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Shannon Ullman

Managing Editor

Managing editor working to make crypto easier to understand. Pairing editorial integrity with crypto curiosity for content that makes readers feel like they finally “get it.”

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