Stellar HODLing in your XLMwallet vs crypto lending: what to choose?
Crypto staking is very popular, and some think that it’s a much better alternative to IEO, cloud mining and other investments. Platforms offer up to 20% per year for staking. Is this safe? Should you buy staking coins — or continue holding XLM in your wallet? Read our analysis!
Crypto lending is now just as popular as IEOs were last years. It’s supposedly safer, too. Here’s how it works: a user needs some crypto, usually for margin trading. They have some other crypto assets that they don’t want at that moment. The user deposits what he has on a crypto lending platform as collateral and gets a loan in a different crypto. You as the lender get regular interest, and the platform acts as an intermediary between you and the borrower.
There are dozens of crypto lending platforms, some centralized, other decentralized. Some of them also offer you to lend XLM, though most offers are for USDC, USDT and BTC. Out of the major platforms, you can find Stellar interest accounts on Celsius Network (3% a year) and Nexo (5%).
So, should you send the lumens from your XLMwallet to those platforms or no? Let’s dig deeper.
Crypto lending comes in two shapes: centralized and decentralized. The decentralized options are completely run on a smart contract: there is no administration that decides who gets a loan and at what terms.
Decentralized lending is quite safe, because the borrower deposits a huge collateral on the smart contract, and that collateral can always be sold to repay you. Apps like dYdX and Compound work that way. However, they don’t support Stellar, only coins like DAI and BAT.
And then there’s centralized lending. The platforms collects the money that users lend and creates loan offers. It’s like a P2P lending marketplace, but P2P doesn’t mean decentralized. The management still makes all the decisions and you can’t monitor the state of your loan. The platform will ensure you that it got a big collateral and that your crypto is safe — but there’s no way for you to check. If the authorities accuse the platform of some wrongdoing, it can get closed and you won’t have any way to recover your lumens.
From the point of view of risk, there’s no difference between lending XLM on a centralized platform or depositing your cash money in a bank. In both cases there’’s a black-box structure between you and the borrower.
So far there haven’t been serious incidents with lending platforms from the top 10, but it’s just like with centralized crypto exchanges — there’s always the first time.
Because of these centralization risks, we don’t advise that you send your XLM to these platforms. Besides, the lending rates aren’t that great. If you want to make an additional investment, you can get some DAI or SNX and lend them on platforms like Nuo or dYdX for the same or better interest rates. We have nothing against crypto lending in itself — when it’s decentralized, it’s a good investment instrument.
As for your XLM, we advise that you keep holding them in your wallet. The corona crash is over, so the price will almost surely keep rising. If you wait 3–4 months, you can earn 20% or more on your lumens — better than any crypto lending deal!
If we were to choose between storing lumens in the XLMwallet or exchanging them for some lending or staking coin, we’d definitely keep the lumens. We are 99% sure that the gains will be greater.
What’s your opinion on crypto lending? Have you done it! Write in the comments!
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