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 SOL | Loading… |
Key Takeaways
- Users who want to earn reliable returns on their $SOL tokens can use lending platforms such as Kamino, Save or MarginFi.
- Because lenders make their Solana available for borrowers, they receive rewards in return.
- While lending can be lucrative, staking Solana is also an option to earn yield on your $SOL.
What Is SOL Lending?
Solana lending is way to earn passive income by lending out your $SOL to borrowers in exchange for interest.
When investors lend $SOL tokens, they either:
- Deposit their assets into a supply pool on decentralized lending protocols
- Or deposit with a centralized platform's earning account.
When investors make their tokens available for borrowers, they receive rewards in return. Instead of lending, you could put up your assets as collateral and borrow against them. While we won't delve into that on this page, you can find a more in-depth explanation of crypto-backed loans here.
How Does SOL Lending Work?
$SOL lending works similarly to lending other cryptocurrencies or stablecoins. Investors make their $SOL funds available for borrowers, and in return, are rewarded in interest. However, $SOL lenders don’t give their tokens to borrowers directly; instead, they deposit their tokens in an account or pool made available to users who wish to borrow assets.
Over time, rewards are paid out either in $SOL tokens or in tokens native to the exchange, whether it be a centralized or decentralized platform. Solana interest rates fluctuate based on demand and availability, so it's important to compare options for the best Solana lending platforms and protocols.
As mentioned earlier, there are two options to consider when lending $SOL: centralized and decentralized platforms. Here’s how they work:
How To Earn Interest By Lending Solana
If you own $SOL, you can earn interest by lending it out. Here are the two main ways to lend out your Solana:
- CeFi platforms like Nexo: Simple and beginner-friendly, but you give up custody of your assets.
- DeFi protocols like Kamino, Save or MarginFi: You stay in control of your funds but it comes with more complexity.
Not sure which route is right for you? We lay it all out in the table below. 👇
Solana Lending: CeFi vs DeFi Comparison
| Centralized Platform (CeFi) | Decentralized Protocol (DeFi) | |
|---|---|---|
| Ease of use | ✅ Beginner-friendly, simple UI | ❌ Requires wallet setup and more technical knowledge |
| Custody | ❌ Platform control your funds | ✅ You control your wallets and keys |
| KYC requirements | ❌ Identity verification is needed | ✅ No KYC, open to anyone |
| Security risks | ❌ Platform goes bankrupt or gets hacked | ❌ Protocol is hacked or you could get phished |
| Fiat access | ✅ Can easily convert to fiat | ❌ Requires external on-ramping or off-ramping |
CeFi SOL Lending
A user can lend their cryptocurrency in a manner similar to traditional loans: a borrower receives a loan and later repays it with interest and any applicable fees. Centralized exchanges (CEX) often facilitate this process, acting as the middle man. In return, the exchange typically takes a portion of the interest earned.
Pros And Cons Of CeFi SOL Lending
Pros
- Borrowers are vetted by the exchange during account setup
- Easy to navigate for new or inexperienced users
- Easier tax reporting
Cons
- Confusing interest structures
- Not available everywhere
- Exchange has custody of tokens
Best Solana Lending Platforms (CeFi)
Nexo
Nexo is a centralized exchange with a strong presence in the lending and borrowing space. Although it boasts 5 million users globally, its services are not available in the USA.
To promote the use of its platform, Nexo encourages transactions that use its native $NEXO tokens, offering attractive yields. For instance, if you opt to receive your returns in $NEXO tokens rather than $SOL, the platform gives you an extra 2% bonus.
Why lend with Nexo:
- Can lend with a wide range of assets (including $SOL)
- Often provides a higher APY for Solana (6%-12%)
- Holding the $NEXO tokens can give you additional returns
DeFi SOL Lending
Definitionally, a decentralized platform cannot act as a middleman — there is no central body through which tokens flow through. Instead, there are these structures called “liquidity pools” that serve as means for automated technology to move trades along. It’s helpful to think of a liquidity pool as a big pile of crypto tokens — if a user wants to buy these tokens, the automated tech can take from that pile and add to another one.
To keep these piles well stocked, users can lend to them — and receive a percentage of every trade that takes place in that pool as a result. This is how an investor can receive a passive income through a decentralized protocol.Furthermore, some DeFi lending protocols do work like CeFi platforms, except the identities of investors and borrowers aren’t verified. Smart contracts process the Solana loans and determine interest rates by complex algorithms that take into account the total supply of $SOL versus the amount borrowed (this last bit was for all the nerds out there, so don't worry if you didn't understand it).
Pros And Cons Of DeFi SOL Lending
Pros
- No KYC required
- Smart contracts automate processes
- Higher income potential with pools and loans
Cons
- External wallet required
- More complexity
- No live user support
Best Solana Lending Platforms (DeFi)
Multiple DeFi platforms offer lending capabilities that allow users to earn interest on their idle cryptocurrency assets. Here are the three platforms you can use to lend on Solana.
Kamino
While Kamino offers a wide range of products such as swapping and deploying liquidity into DEXs, its core focus is lending and borrowing.
It provides competitive rates across multiple digital assets & boasts some of the deepest liquidity in the Solana ecosystem. Currently, lending $SOL on Kamino earns an interest rate of 4%-6% APY.
Why lend with Kamino:
- Largest lending and borrowing protocol on the Solana Blockchain
- Highest lending rate (for $SOL) to maximise your yield opportunity
- Offers lending on a wide range of stablecoins and altcoins
Save (formerly Solend)
If you search “lend Solana” on google, Solend is the first name that pops up. Recently rebranded to “Save”, it’s a decentralized protocol that allows you to lend & borrow digital assets on the Solana blockchain.
Compared to Kamino, Save offers a lower interest rate of around 2.5% APY for lending $SOL.
Why lend with Save:
- Low transaction fees
- Lending and borrowing across 132 assets
MarginFi
MarginFi is a decentralized protocol designed to provide yield to its users. It not only features the highest yielding liquid staking tokens (LST) on Solana but also ranks the 3rd largest lending and borrowing protocol on the Solana blockchain (behind Kamino and Save).
Currently, MarginFi offers an APY of 2.9% for lending $SOL, which is comparable to the yield provided by Save.
Why lend with MarginFi:
- Provides native staking and lending on one platform
- Offers lending and borrowing across multiple tokens on the Solana Blockchain
Solana Lending Vs. Solana Staking
While lending and staking work differently under the hood, the end goal is the same: earn yield on your crypto.
Let's compare the most prominent lending platform (Kamino) with the biggest Solana staking platform (Jito).
| APY | Liquid token | Token Lockup | Taxable event | |
|---|---|---|---|---|
| Kamino (Lending) | 6.98% | No | No | Yes |
| Jito (Staking) | 7.81% | Yes (JitoSOL) | No | Yes |
Even though Jito might look like the better option right now, keep in mind that the APYs are always changing! Before making any moves, it’s best to double-check the latest rates (APY) on each platform’s site.
SOL Lending Taxes
While it’s always safer to speak with an accountant who can take your personal situation into account, it's important to understand that you'll likely owe taxes if you generate income from lending SOL. The IRS defines crypto holdings as property, and are therefore subject to taxation like any other form of income would be.
Generally, if you generate any sort of income from lending SOL, you can expect to pay taxes on it. CeFi exchanges will help prepare the necessary forms to correctly report income from lending SOL, while DeFi users can expect to prepare that information themselves. It’s always important to speak to a tax professional to understand how lending $SOL can affect your personal situation come tax season.
To Sum It Up
Solana lending can be a positive opportunity for those looking to gain a little bit of passive income. It's not a great option for investors who plan to buy and sell Solana at prime times to make profits, but investors can capitalize off long-term market trends through interest earned from lending SOL. Be sure to do your own research to understand the risks and benefits of lending any crypto.
Frequently Asked Questions
Lending any crypto — $SOL included — is generally considered to be safe as it's well-established product. However, as with anything, it has its inherent risks. Within CeFi platforms, the company could collapse, taking investors' funds with it, as seen with Celsius's fall. DeFi lending protocols are also at risk of security breaches, smart contract exploits, and hacks.
If you aren’t selling your Solana on short-term market changes, lending $SOL can be a very good option. You may also choose to look into staking $SOL instead, as this sometimes nets higher gains.
- CeFi Platform: Nexo
- DeFi Platform: Kamino
This really depends on the platform you use. Currently, Nexo offers 5% APY on Solana while decentralized protocol such Save (formerly Solend) is offering 2.5% APY.
Short answer: Yes. Long answer: Crypto is counted as property by the IRS, and therefore is subject to taxation, so any income generated from lending $SOL — whether in the form of fiat currency or in $SOL tokens — will likely be taxed, depending on your personal situation. For more information, visit the IRS website and speak to a tax professional.
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