This guide is educational and is not financial advice. Crypto loans and crypto lending carry a risk of losing money. Check current terms directly with any platform before using it.
Lending crypto in a DeFi pool takes a few minutes once you have a wallet and funds. Choosing where to lend, and understanding what can go wrong, takes longer. This guide covers both.
Before you start
- A self-custody wallet such as a browser or hardware wallet.
- The asset you want to lend, usually a stablecoin, on the right network.
- A small amount of the network’s native token to pay transaction fees.
Step 1: Choose a protocol and market
Look at how long the protocol has operated, its audits, its history of incidents and how much is deposited. Within a protocol, each market or pool has its own borrowers, collateral rules and rate. Check what collateral borrowers post in the market you choose.
Step 2: Check the rate and where it comes from
Separate base interest from token incentives. Look at utilization: very high utilization means higher rates but can delay withdrawals. In credit protocols where lenders choose a rate, a higher rate may mean your deposit waits longer to be matched with a borrower.
Step 3: Connect your wallet and approve the token
Connect your wallet on the protocol’s official website. Bookmark the address to avoid phishing copies. The first deposit of a token requires an approval transaction. Approve only the amount you plan to deposit rather than an unlimited amount.
Step 4: Deposit
Enter the amount and confirm. You receive a receipt, often a token or, in some protocols, an NFT representing your position. Keep it in your wallet: it is your claim on the deposit.
Step 5: Track your position
Interest accrues automatically. Monitor the rate, the pool’s utilization and any news about the protocol or the collateral assets used in your market.
Step 6: Withdraw
Withdraw through the same interface. If a pool is fully borrowed, you may need to wait until borrowers repay or new deposits arrive. Fixed-term credit pools may lock funds until maturity.
Common mistakes
- Chasing the highest advertised rate without checking where it comes from.
- Putting everything into one protocol or one market.
- Leaving unlimited token approvals active after you stop using a protocol.
- Ignoring the stablecoin’s own risk.
Learn more about how crypto lending works and its risks, or about on-chain credit pools that lend to businesses.
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