Key Takeaways
- Lending $ETH is a good way to earn passive income while retaining ownership of your tokens.
- $ETH lending is just one way of earning from your $ETH and has pros and cons compared to other yield-bearing methods like $ETH staking.
- $ETH can be loaned through centralized lending platforms or via DeFi protocols. We cover both methods on this page.
What Is ETH Lending?
This is the process of loaning out your Ethereum to borrowers that want to take out an Ethereum loan. 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 returns. The borrowers pay interest on these Ethereum backed loans, which is what makes up the yield you receive.
How Does Ethereum Lending Work?
Crypto backed 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 "crypto 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.
Ethereum loans arealmost 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 of crypto they want to borrow.
This structure allows you to borrow assets 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 providing 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 CeFi Ethereum Lending Platforms
Here are our picks for the top Ethereum lending platforms.
Out of these options, we believe that Nexo is the best crypto lending platform.
| Nexo | $BTC, $ETH, $SOL, $XRP, $USDT, $USDC, $NEXO and more | 4% to 8% | Nexo offers daily interest payouts | Choose between earning interest in NEXO tokens or in the token you loaned (in-kind) | Choice between fluid, 1 month, 3 month, and 12 month lockup periods | No | Nexo was founded in 2018 and is based in Switzerland | Originating overcollateralized loans |
|---|---|---|---|---|---|---|---|---|
| Ledn | $BTC, $ETH, $USDT & $USDC | 3%-3.5% | Monthly interest payouts | In the currency you lent (In-kind) | No lockup period | Interest-earning accounts are not available in the U.S. | Ledn was founded in 2018 and is based in Toronto, Canada. | By working with institutional market makers |
| SALT | $BTC, $ETH, $LTC, $USDT & $USDC | 5% to 10% | Monthly interest payouts | In the currency you lent (In-kind) | No lockup period | Yes | SALT was founded in 2016 and is based in Denver, USA | Lending deposited assets to borrowers who pay interest |
Nexo
| Nexo | $BTC, $ETH, $SOL, $XRP, $USDT, $USDC, $NEXO and more | 4% to 8% | Nexo offers daily interest payouts | Choose between earning interest in NEXO tokens or in the token you loaned (in-kind) | Choice between fluid, 1 month, 3 month, and 12 month lockup periods | No | Nexo was founded in 2018 and is based in Switzerland | Originating overcollateralized loans |
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 users to access interest rates between 4% and 8% APY.
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.
| Base Loyalty Level | Less than 1% of your portfolio is in $NEXO | 4% | +1% | No bonus | 5% |
|---|---|---|---|---|---|
| Silver Loyalty Level | 1% to 5% of your portfolio is in $NEXO | 4.25% | +1% | +0.25% | 5.5% |
| Gold Loyalty Level | 5% to 10% of your portfolio is in $NEXO | 4.5% | +1% | +1% | 6.5% |
| Platinum Loyalty Level | 10% or more of your portfolio is in $NEXO | 5% | +1% | +2% | 8% |
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
Pros
- $NEXO token provides benefits across the entire Nexo exchange
- $ETH lending APYs go up to 8%
- Interest is paid out daily
Cons
- Lending platform not available in the U.S.
- To get the best APYs, you must hold $NEXO which can be a volatile asset
- Navigating Nexo can be complicated for those newer to crypto
How To Lend ETH Via Nexo
Step 1:Head to Nexo and sign in or create an account.
Step 2:Head to theAssets 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.
Top DeFi Ethereum Lending Platforms
There are of course plenty of options but here are the 2 best crypto lending platforms in DeFi.
| Aave | $ETH, $WBTC, $USDT, $USDC, $cbBTC, $AAVE and more | 0.5% - 5% | Real-time (block-by-block) | In the currency you lent (In-kind) | No lockup period | Yes | Founded in 2017 out of Switzerland | Lending deposited assets to borrowers who pay interest |
|---|---|---|---|---|---|---|---|---|
| Compound | $ETH, $WBTC, $USDT, $USDC, $COMP and more | 0.5% - 4% | Real-time (block-by-block) | In the currency you lent (In-kind) | No lockup period | Yes | Founded in 2017 out of San Francisco | Lending deposited assets to borrowers who pay interest |
4.6Similar to Compound, Aave’s DeFi platform uses a series of smart contracts that allow lending and borrowing. Where Aave differs from Compound is in its range of blockchains and tokens; Aave supports 13 blockchains compared to the 7 on Compound. Aave also offers more token choices for lenders and borrowers.
DeFi without risk? There’s no such thing. But Aave offers a Safety Module, an investor-funded insurance pool that insures against shortfall events. For example, smart-contract bugs could cause lenders to lose money. Losses can also occur when the market moves quickly, slowing or preventing collateral liquidations.
- Aave supports 13 different blockchains.
- Easily swap cryptocurrencies on Aave to capture a better rates; if you see a chance to lend / borrow with more competitive rates, you can exchange your tokens for those tokens without leaving Aave.
- Biggest decentralized lending & borrowing platform in crypto
3.2Compound Finance is the OG lending & borrowing platform in the DeFi space. It's been around way before Aave was even born. Lending & borrowing rates vary based on demand. The platform supports lending & borrowing in $ETH, $WBTC, $USDC, and several other major cryptocurrencies.
• One of the OG platforms in the crypto space • Occasionally provides more competitive rates on stablecoins • Clean interface
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 above means that your crypto will be stored in the platform’s reserves. 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.
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 | Borrowers who pay interest on loans that is then passed on to you | Unavailable $ETH that is loaned out earns a fixed yield and cannot be used for anything else while it's locked up | Lending can take just a few clicks |
|---|---|---|---|
| $ETH Staking | New token issuance and network fees from the crypto protocol | Available Methods like liquid staking allow you to double-earn on your staked tokens by combining staking with liquidity mining or lending | Staking is as easy as lending (if not easier) |
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 a5% 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.
CeFi vs DeFi ETH Lending
| CeFi | Normally higher and automatically taken out of your APY | Determined by the platform — fixed | Centralized, opaque platforms with no insight into internal workings | Low — can be done in a few clicks | Hacking, Platform Insolvency, Bankruptcy |
|---|---|---|---|---|---|
| DeFi | Fees are usually lower and are explicitly listed alongside APY | Determined by the market — always fluctuating | Decentralized and transparent platforms whose code is often open source | High — some familiarity with DeFi is necessary to complete the process | Hacking |
DeFi platforms maintain automated markets using smart contract code to determine real-time lending and borrowing rates. As a result, crypto 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 smart contract 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. It’s important to understand where the yields 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 digital assets 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.
Frequently Asked Questions
Yes. To learn more about taking out a fiat or stablecoin loan using your Ethereum as collateral, check out our borrowing article here.
Lending rates for $ETH range between 1% to 8% depending on which platform you use. Rates can also vary based on supply and demand when lending $ETH through a decentralized platform like Aave or Compound
Lending your $ETH can be a great way to earn yield on your idle tokens. Lending is not without risk, so you should do your research to find the platforms that provide the best returns with the lowest risk profile.
Yes, many crypto exchanges provide leverage for Ethereum trades. To find out more about Ethereum trading, click here.
Ethereum can be lent out through most platforms that support crypto lending.
Our top picks for the best Ethereum lending platforms are:
- Nexo
- Ledn
- SALT
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