Cryptocurrency lending platforms: Risks and benefits

Lending platform in blockchain is a way we are able to gain access to loads of financial services like being able to borrow money and lend features also available in the traditional financial services which ofcourse we are able to enjoy in a truly decentralized manner in the lending platform blockchain affords us which ofcourse is so much better than what we have available today, so when it comes to lending platforms truly they have their benefits and bad side too and I will deliberate on risks and reward of lending platform.

source

Benefits Of Cryptocurrencies Lending platform

One of the benefits of this lending platforms that's the incredible use it offers to its users is that they can actually earn passively, how do I mean, that's to say there is an accrued interest users earn on the platform which ofcourse is an added incentive and it's easily so when users lend out their holdings to this platforms ofcourse when the agreed time reaches they are paid back with interest thus providing a nice opportunity for users who do this them to earn in a passive way which ofcourse is a great benefits to lending platforms.

The cryptocurrencies market is one that needs a great deal of liquidity to function effectively and this is actually where this lending platforms comes in, they help a great deal by contributing a great quota of the liquidity that cryptocurrencies market needs. The traders and investors who are constantly on the cryptocurrencies market finds it really great to know that the market is very liquid and that they can come in and either buy or sell at any time since that's afforded an this is possible in a very liquid market so thus when the market is liquid it helps or encourage more people to come into the market and due to the borrowing and lending services this lending platforms facilitate it helps to further enhance the liquidity of the cryptocurrencies market which is a welcome development.

Another benefits of lending platform is it helps to provide a measure of diversification to investors helping them not to be fixated on just one asset, in what way. People or uses of this lending platforms are able to freely participate in the lending market and when they do as interest earned or other viable returns which are somewhat different from their current holding that's to say they could receive their earnings with another token and also in this events those token earned are based on a fixed value and market volatility does not really affect it which is very good and thus brings much needed diversification to such investor.

Lending Platforms benefits are also in the area that they help one to be able to gain access to funds, yes we might have holdings in the platforms but probably we don't want to have to sell it but yet we really needs funds for something, this is where this lending platforms could be of great help in that they help us to borrow the money we need from the platform and put to use without having to liquidate our holdings thereby helping us leverage our assets and also it also help to avoid tax since we won't be required to pay one since we are not really selling any holdings so it's helps to give us the needed leverage we need and help protect us from taxable events as well, which is a welcome bonus.

Risk Associated with cryptocurrencies lending platform

One of the bad side of this lending platforms is that cryptocurrencies in general has an uncertainty when it comes to regulations and also this lending platforms also has changing regulations environment which means at any moment they may be subjected to strict governmental regulations which may impact it's operations ifnot shut it down completely which ofcourse would impact those invested on them in an event of unfavorable regulations.

Also another possible risks that comes with this lending platforms is the volatility of the crypto market which is highly speculative and is subject to rapid change in a small amount of time, this ofcourse is bad for business and could lead to change in the value of collateral used as a basis for offering lending service and worse still is that the extreme volatility of the cryptocurrencies market in adverse cases leads to liquidations which maybe uncalled for and this volatility of the market may potentially scare away users.

another risk that comes with lending services has to with security issues, yes there is a security risk especially to those centralized lending platforms which makes it at risk from cyber threat and puts it's integrity into question, how can users trust a platform when it's so vulnerable and in any event of technical issues it may lead to loss in users funds in the small window of opportunity it opens as malicious actors will most definitely exploit this to maximum.

Sometimes too due to the volatility in the cryptocurrencies market and unexpected turn of events it brings this may at times makes it harder for people who borrow to pay back due to sudden price movement may lead to a possible risk of borrowers defaulting which when it happens will lead to unwanted loss for the lenders, so the possibility of defaulting is one risk associated with lending platforms.

Conclusion

It's really crucial we come to know this benefits and risks that comes with lending platforms, I believe it will help us make educated informed decisions on what we are signing up for and all the possibilities that comes when we use this platforms but the good side and bad side.