Bitcoin Forum

There are a bunch of options for high interest from crypto lending. But there are 2 big risks:

1. Since you have to give possession of the coins to the lending company, they can be hacked and you can lose everything (I understand Celsius has insurance, what does it cover?)
2. The borrower collateral will be worth nothing after a crash and you will not get the interest you are promised.

So are they all too much of a risk? What happens after a crypto crash? Or are any of them safe because they collect a lot more collateral from borrowers than is needed?

On p2p lending, you choose what collateral is worth for you. As a lender, you're the one to determine which altcoins you want to have and acceptable. You lend and you make your rules. That's the only solution you can do if you're too worried about the crash.
It's all about your choice in altcoins and mostly you have to choose the top altcoins for your ease. You don't choose collaterals that can be said of higher amount from the borrowing amount but if that coin is totally low volume and worthless.

Lending or borrowing should be engaged through a trusted platform that is capable of any loss, for this I choose binance exchange, this exchange solely have risk management in place, funds aside for any possible losses or hacks, with binance you don't have anything to worry about

Ofcourse lending has such risks as you mentioned so you are the to decide whether you want to take sich risks for interest rate or simply want to be in the possession of your own cryptocurrency assets. Cryptocurrency lending is yet to become popular because people afraid of the volatility reasons and defi also plays a part in its adoption for the future

The only place I trust for lending and borrowing is binance exchange because they can reimburse any losses that occurs, this exchange even have risk management funds apart incase something unexpected happens, they cares alot about their reputations

That first risk is the biggest, and insurance at Celcius and others are very small (compared to the total funds they have management over),,, so even if a hack happens, I doubt every user would get compensation, or a small percentage of the sum.

Not sure about the second risk but I agree, it does not sounds worth it. Most say over collaterized like 50% but we all know crashes can happen to 90%.

Not all lending has this offering because in this forum there are even accounts that allows you to borrow without any collateral needed But of course you must prove how legit you are , because Like you Lenders wanted  also assurance as you are concern about your collateral they are also concern about their funds so don't worry the feeling is mutual.

in Lenders mind " WHAT IF YOU SCAMMED THEM" like your thoughts that what if they were being hacked.

About the question if its insured.

Fireblocks and PrimeTrust, our custodians, both provide insurance on assets. However, we generate interest rewards by lending out the assets to onboarded partners. When these assets are lent out, they are not insured.
 All of our coin loans are collateralized up to 150%, meaning the borrower gives Celsius an alternative asset as collateral for the asset they are borrowing.

snipped out from: https://support.celsius.network/hc/en-us/articles/360002174718-Do-you-have-an-insurance-policy-

In talks of crypto lending then it is always accompanied with risk and you should really be prepared for it.
 

The platforms will always have parnered with the custodian to get the insurance for its holding. Let's say about the kucoin's partnership with onchain custodian
https://m.kucoin.com/news/en-kucoin-partners-with-onchain-custodian-to-get-its-funds-backed-by-insurance

https://blockfi.com/crypto-collateral-value

It's clearly explained by blockfi. It gives you an example of when your collateral was going up and down.

Crypto lending is an option because of the high interest compared to conventional bank interest, everyhings there is a large return then the risk is also big and I think those who participate in such a platform already understand about the risks, which is why a strategy is needed not only based on high interest offers but a way to minimize risk, for example, don't buy coins whose price is high enough to get interest because you may not get anything because when the contract is over the price of the coin drops deep enough.

As long as you can use the recommended website that offers crypto lending, you will be fine. I suggest you use the exchange such as Poloniex and Binance to lend your bitcoin to traders because the return is good enough to give you additional income. I use Poloniex in the past to lend my bitcoin, and I get a nice return as I also trade on that site to make more profit. That site is safe so far, and you do not need to worry about the bad things that can happen. But maybe you can search for more info to find the other site.

I am biased about third party lending and I prefer p2p lending as a good source of a smallcap business, I ran one such thread in another crypto forum as well.

I can tell without even looking at the terms and conditions, that the insurance will rarely be enough to cover the loss. In case of a hack, as we have seen on many exchanges and so on, the money is lost for good and nothing can be approached legally. It is a downside of these smart contract lending services.

Considering lack of collateral liquidity to be a normal risk involved in lending, this is a common thing but to prevent or possibly reduce this, lenders prefer to take a higher value of the collateral (120-150% of loan value) and that too top 10 altcoins. A more diligent lender will also do a thorough research on that altcoin for possible backdoors and hackable stuff in their blockchain to prevent a theft.

Both type of lending have pros and cons.

What would happen to fiat markets if they crashed? Simple answer. But if you keep thinking in the lines of "world ends" you will never be able to do anything fruitful. ;)

I dont think they collect too much collateral, rather the regular amounts. Have you been a borrower yet?

Another comment I'd like to add, if anyone remembers p2p lending (it used to be big in 2016 right even with crypto), how widespread it was and especially in China. Solid business model and also overcollateralized. But it all failed, bad asset management and poor collection on money/interest owed.

Wondering why the same won't happen to crypto lending actually.

If a lot of the services require collateral in the same coin, what is the purpose? Eg, if I am lending ETH and they require overcollateralization in ETH, then why would the borrower lock up more ETH than they need, to borrow a lower amt of ETH from me? I don't see what the purpose could be, and so how stable the return would be for purposeless transactions.

Just saw your post from last week,,, I definitely remember p2p lending. At one point before the 2017 crypto rally Wall Street had a famous p2p lender crash, and actually China also closed down THOUSANDS of p2p sites. In fact, I remember at faucet sites many of the ads was for p2p lending in Bitcoin.

In theory a great way to make passive income. But in practicality, too many risks of default because people lend to people who find a way to take advantage.

This is a risky type of business honestly, the risk is more on the lender so he needs to insure that he take a collateral and collateral should be high, enough to consider a possible changes in the market that would affect the collateral's value badly.

I think the best business in lending is to lend a stable coin so your main concern is to only focus on the interest earn and not on the volatility of the coin which is hard to mange as a risk.

Forget getting hacked and losing your coins, if you want to lend out your coins you have to use a trusted top exchange that's capable of refunding users even if hacks do happen, for example binance exchange and kucoin are good exchange you can use with no worries, hacks happened on these exchanges and they pay all affected accounts back

Yeah, this all that matters. But you can't be assure if they will be hacked and you'll be refunded. But at least they have a black and white format and explanation for the worst case scenarios. Binance was responsible when they were breached by hackers.

You can do this option if you don't want that much volatility and you want to get interest in fixed amount through stable coins, it's a good idea.