Crypto Lending vs Staking — What’s the Most Prudent Choice?

As economic systems around the world collapsed due to the Covid crisis of 2020 and financial institutions were shaken to their core, more investors have been turning to the crypto markets and the still developing DeFi sector for profitable passive income ideas. Now, the crypto industry already offers several options for users to generate more income with their existing crypto assets. However, in recent times, I have noticed that crypto lending and crypto staking have become the most widely used passive income solutions.

According to Stakingrewards, the total staking market cap is at about $367 billion at the moment, with around $102 billion locked in staking. And as data from DeFipulse shows, MakerDAO, Aave, and Compound — the most popular DeFi lending platforms as of right now — all have around $5 billion locked in lending, with Maker having $5.95 billion.

A question I have seen crypto enthusiasts asking many times is this: which of the two aforementioned strategies helps you make more money out of the crypto you already hold? Before I give you an answer to that question, let’s first take a look at what crypto lending and crypto staking are all about, shall we?

What’s Crypto Lending?

Crypto lending, much like fiat lending, involves two parties — the lender and the borrower. The lender receives a fixed interest payment from the borrower in exchange for the loan. The borrower, on the other hand, has to deposit their own crypto assets on the lending platform as collateral so as to safeguard the lender’s investment.

Crypto lending has lately become quite popular among users for two primary reasons. I mean, you can get a loan instantly instead of having to go through the lengthy procedure associated with traditional lending, and there are no limits to the amount you can take out as a loan. What’s not to love?

And What’s Crypto Staking?

Crypto staking is basically the act of locking your crypto assets (any amount you wish to deposit) in a specific PoS blockchain network of your choice for a certain period of time, so that you can receive the staking rewards from the network once that time period is over. By staking your coins, you are also helping the blockchain network remain active, and ensuring its security.

The method for calculating the staking rewards for users might vary with different PoS systems, but generally, once a blockchain network selects a staker to validate a new block, they are rewarded with a portion of the trading fees users pay while using the network. It’s important to keep in mind that the larger your staked amount, the more your chances of being selected by the network to validate new blocks.

Now, let me talk a little about the distinctions between crypto staking and lending.

So, What are the Main Differences between Crypto Lending and Staking?

Complexity:

With crypto staking, you need to first develop an in-depth understanding of the workings of a PoS blockchain. Plus, you’d require to be aware of how the particular blockchain network of your choice functions, the lock-in period (the amount of time you’d need to keep your crypto assets deposited to earn the staking rewards), how the rewards are calculated, etc. Not to mention that you’d also have to actively participate in the transaction validation process on the network.

Risks:

There are also some risks related to the ever-volatile crypto prices. If the price of your crypto assets fluctuate downwards during the lock-in period, it could cause you to lose out on profits.

Crypto lending, on the flip side, comes with counterparty risks. Additionally, most DeFi lending platforms in the market are still in the development stage. This means that the crypto platform you are using to lend out your assets might get hacked, which would result in you losing your investment.

Security:

Crypto Lending vs. Staking: Which One Should You Choose?

As I’ve said before, crypto staking requires the investor to have some knowledge of the PoS blockchain networks and how they work. Therefore, if you are new to the cryptocurrency world, you’d probably better try out crypto lending. That being said, it’s undeniable that crypto staking opens up a horizon of exciting opportunities for investors truly wanting to participate in a blockchain network’s governance and maintenance. Crypto staking rewards are also quite often higher than the returns from crypto lending. Moreover, as entry barriers to the blockchain ecosystem get lowered with every passing day, crypto staking is gradually getting more accessible to the general populace.

Well, there you have it — a look at the advantages and disadvantages of both crypto lending and staking. I hope this helps you decide which avenue you want to invest your money in! As a DeFi enthusiast, I know where I’m headed.

A blockchain enthusiast and entrepreneur’s musings on the next big revolution since the Internet.