Academy Author ◦ 13 Jul 2023 ◦ 9 min read

P2P Lending: How Does It Work?

P2P Lending: How Does It Work?

Lending is a way of passive earning based on the transfer of assets from one user to another for collateral. The funds received exceed the issued and the interest rate from them.

The platform providing the service uses the money for turnover and guarantees the payment of income and a refund of money at the end of the contract. The owners of digital assets receive a double benefit: income from price growth and interest payments.

Crypto lending is an analog of a bank deposit but with greater profit. Increased profitability, in turn, entails great risks for the client. The main selection criteria should be the timeliness of payments and the reliability of the platform.

Average parameters of digital asset lending:

  • minimum contribution - from 20-30 tokens;
  • service provision time - from 1 to 36 months;
  • interest rate - from 0.2% per day;
  • fee - 0.2-1 percent of the amount.

Lending services are offered by exchanges and special platforms. The former are more reliable and pay less interest for this service. They require verification. Lending sites promise increased profitability but do not guarantee 100 percent payments to customers.

Types Of Cryptocurrency Lending

Generally speaking, five types of lending are available to digital asset owners:

  • Marginal. Traders take money to raise the price of the cryptocurrency. The method is suitable for experienced users who understand risks. Conditions differ depending on the platform policy.
  • Hybrid. Provides for the combination of fiat and digital assets. The loan is issued in cash and returned in cryptocurrency. The service has minimal risks for token owners and allows you to transfer money to fiat.
  • For security. It is allocated by a fixed interest and the availability of collateral. In 90% of cases, Bitcoin is used.
  • Reputational. The money is transferred taking into account the reputation of the borrower and the availability of collateral.
  • Fiat with cryptocurrency collateral (Bitcoin).

Platforms and exchanges can use several types of lending.

Yield: Crypto-Exchanges Vs P2P Lending

Standard income from lending is 12-15% per year, depending on the exchange. Each platform independently sets the interest rate and provides digital assets by it.

Earnings themselves directly depend on how many traders take coins from the user and in what amount. So income can exceed or be lower than the estimated value.

Lending On Exchanges

Lending on exchanges allows you to receive passive income from platforms specializing in providing users with the opportunity to make transactions with cryptocurrencies. The safest option will be to use already proven stock exchanges with many years of successful operational experience, such as Binance, Bittrex, Hodl Hodl,, and Yobit. Before selecting a site, you need to familiarize yourself with the feedback of real users, as well as view company statistics over the past few years.

Hodl Hodl

Hodl Hodl provides a collateral option only between exchange users. To do this, 2 methods are used:

Acceptance of the offer with the terms and conditions set by the borrower. The order is placed by users who need credit.

Create your quotation with your terms. In this method, the decision to issue credit funds is made directly by the borrower, subject to all the terms of the transaction.


Bitfnex provides users with a caste tool - Lending Pro. With it, you can create individual loan conditions that will suit both sides of the transaction. The minimum number of digital assets that can be given as a virtual loan is $150.

At the end of 2021, the maximum income growth was more than 53% per annum on AXS assets. This fact puts Bitfinex in a more rosy light because not every exchange boasts such results.

The lending policy of is slightly different from the above platforms. Non-users can receive digital assets only from the exchange itself. To provide lending, the platform attracts third-party investors, which leads to an increase in the liquidity of coins.


Yobit provides users with an InvestBox service. It is designed to facilitate investment processes for project developers.

Also, the platform uses InvestBox to attract a new audience to coins and tokens, which leads to an increase in their liquidity in the market.

The service allows developers to invest capital at a rate of 10% per day on certain altcoins. This method has a high level of risk, but the exchange itself provides the means to increase investments.

What Are Lending Protocols?

Lending protocols allow users to take cryptocurrency loans in the field of decentralized finance (DeFi). In the traditional financial system, credit organizations provide money to borrowers. DeFi protocols allow peer-to-peer (P2P) lending between network members. This eliminates the need for intermediaries. Anyone can become a creditor and earn interest on crypto. Users can borrow cryptocurrency by connecting a cryptocurrency wallet to the platform and immediately use it for trading, staking, or for other purposes.

Lending protocols allow borrowers to receive funds in debt relatively quickly and affordably, and creditors to receive passive income. For the security of loans in cryptocurrency lending, the practice of collateral/collateral or excessive collateral (over collateral) is sometimes used. For example, to borrow 1000 USDT, the user must deposit the equivalent of 1500 USDT in another currency.

Advantages And Disadvantages Of Lending Protocols

Consider some of the main advantages and disadvantages of DeFi lending platforms.

  • Rate of credit approval. To receive a DeFi credit, you do not need to go through checks, provide documents, and wait for confirmation. Blockchain simplifies all processes: anyone can almost instantly take out a loan if they meet the conditions of the protocol.
  • Transparency. All conditions and interest rates are in the public domain and cannot be hidden or somehow changed by the platform.
  • No third-party permissions. Thanks to the openness of the blockchain ecosystem, anyone can use credit protocols without the need to request the permission of third parties and report to them.
  • Flexibility and accuracy. All DeFi platforms operate on smart contracts. Given the reliability of smart contracts, working with lending protocols minimizes risks and the human factor. Increased flexibility.
  • User control over your assets. DeFi credits allow users to fully control their digital assets. The funds are stored only in the cryptocurrency accounts of the user and are in his full possession.
  • Stability and immutability. It is almost impossible to change the data in the blockchain. Users can check smart contracts and their execution to ensure that the conditions are met and the funds are safe.
  • Cross-integration. Most DeFi protocols are gradually introducing support for several blockchains, which makes them even easier to use and opens up additional opportunities for borrowers and lenders

Among the shortcomings of lending services, one can distinguish not the most intuitive User Experience, which is characteristic of the entire DeFi environment. Lending protocols require understanding how cryptocurrency wallets and blockchain networks work and also have complex mechanisms for calculating interest. Moreover, in the mechanisms of work of relatively new protocols, there may be periodic failures, especially when working with different cryptocurrency wallets.

In addition, the lending protocols in the DeFi environment are not regulated, and smart contracts can be vulnerable. Lending protocols do not fall under any regulatory framework. Funds placed in the protocols do not have insurance mechanisms offered by banks and other traditional financial institutions. When choosing a lending protocol, the user relies on feedback, analysis, and conviction of the reliability of the service.

Popular Lending Protocols (DeFi Lending)


Aave is one of the largest credit platforms in the field of DeFi. Launched in 2017 as ETHLend on the Ethereum blockchain, Aave gradually grew into one of the leading lending ecosystems. TVL (total retained funds) on Aave is more than $21 billion in seven blockchain networks.

Most credit rates on Aave range from 1% to 3%, but some coins may yield higher returns. Owning your own AAVE platform token allows you to reduce the commission when trading on the platform. It is also used to manage the local DAO.


The MakerDAO platform allows users to lay tokens as collateral for minting DAI, a decentralized stablecoin with a link to the US dollar. Smart contracts MakerDAO embedded algorithms for reducing DAI volatility through lending. Platform users can borrow DAI from the protocol using the application. You can secure a position with any of more than 20 tokens on the Ethereum network in exchange for "stability fees."

MakerDAO offers flexible interest rates for DAI, ranging from 0% to 8.75%. Rates are based on stability fees charged to borrowers.

DAI owners can at any time put their stablecoins in the DAI Wallet wallet and receive passive income. There is no fee for access to the DAI wallet, but users need to pay a gas fee when replenishing and withdrawing funds. In the future, integration with Compound and Aave protocols is planned, which will allow MakerDAO to offer higher APYs (annual percentage yield). is a lending protocol on the Fantom blockchain, offering lending and interest-free loans. Sturdy offers high APY for stablecoins, comparable to interest rates of highly volatile assets. For stablecoins fUSDT, DAI, and USDC, Sturdy offers 18.57% per annum.

The platform does not charge interest on crypto loans. The team plans to eventually deploy DApp in EVM-compliant networks, as well as implement FTM and WETH tokens as collateral.

Advantages of P2P Lending

  • High profitability. The user can get an increase of 20-50%, depending on the chosen method and platform.
  • Middlemen. Intermediary platforms significantly reduce the risk of losing investments.
  • Simplicity. For lending, you do not need to study all the available information about cryptocurrencies for months.

Disadvantages of P2P Lending

  • High risks. If you do not use intermediaries, the risks of losing investments increase significantly.
  • Limited plans. Very often, the investment plan on the exchange lasts no more than 1 month.