The Difference Between Crypto Lending and Crypto Staking

The Difference Between Crypto Lending and Crypto Staking

With stocks, investors can earn passive income via dividends. For the longest time, something similar was unavailable in the crypto world. This situation changed when crypto lending and crypto staking came to the scene.

Crypto lending and staking are ways for crypto holders to make money on their holdings without selling. But what is the difference between the two? Is one better than the other?

Here's what you need to know about the difference between crypto lending and crypto staking. But first…

A CryptoCurrency Primer

If you’re already well-versed in cryptocurrency, you can skip down to the next section. But because there is still so much confusion and misinformation, let’s define a few terms for the uninitiated.

Cryptocurrency is a virtual or digital currency. Until 2009, most of the world’s currency was what is referred to as ‘fiat money.’ At one time, currency was tied directly to physical assets like gold. 

But following the Great Depression, the value of the United States dollar has been defined by the nation’s economic outlook and, of course, a promise the US government will always consider it redeemable for lawful money at the US Treasury (backed by the full faith of the US government as it says).

Cryptocurrency, or just Crypto, aims to avoid an institutional or governmental “middleman” by “decentralizing” money – giving the power back to the people. This decentralization can make the transfer of “value” between parties easier, reduce the costs of said transfers and also reduce potential corruption by the middlemen.

Blockchain is the technology that allows Crypto to do all this. To put it simply, blockchain is the database that proves the value of Crypto by maintaining a record of transactions in the cloud in a decentralized manner, accessible by all and alterable by none.

Bitcoin is almost synonymous with Crypto. Technically, bitcoin is just one form of virtual currency but it has become a ubiquitous term for cryptocurrency in general. 

Admittedly the whole concept can be very confusing because cryptocurrency can be both tradable assets while also simultaneously a utility for keeping a record of its own value.

Additionally, in the last ten years, as the value of blockchain technology has been recognized, new blockchains have been created to facilitate a wide variety of activities better. Ethereum, Cardano, and Solana are new versions of blockchain technology that have more functionality than bitcoin and are cheaper to operate.

Beyond that, companies are creating tradeable coins of their organizations (similar to stock), which trade on these blockchains. And we are now turning artwork, collectibles, and other items into coins called NFTs (non-fungible tokens) that also trade on these blockchains.

The opportunities to utilize blockchain technology seem very far-reaching and will usher in many new companies, technology, and practices, just like the dot com era of the late 90s. 

All that said, in this article, we refer to token rewards as a yield on the tokens you own – similar to getting a dividend on shares you own of a publicly-traded company. But it's not a profit share, it's a form of compensation you get for lending your tokens back to the blockchain administrators for use on the blockchain.

What Are Crypto Lending and Crypto Staking?

In short, crypto lending entails leasing your crypto to human borrowers in exchange for interest. In contrast, crypto staking leases out your crypto to the blockchain for token rewards.

Let’s look at just how well-adapted this earning approach has become.

Last month Genesis, the largest institutional crypto lender in the industry, released their Q4 findings. According to the Genesis Q4 2021 Market Observations Report, loan originations reached $50 billion, up 40% over Q3 2021. Additionally, loan originations for 2021 totaled $131 billion, nearly 7x higher than in 2020. 

Furthermore, according to DeFi pulse, $39.92 billion is currently locked in lending, up from only $8.9 billion two years ago. 

Over the past year, staking has gone gangbusters as well. The 2021 4th quarter report from Staked about the state of the staking market calibrates the growth. 

Staked announced that the overall market cap of PoS protocols now accounts for over 30% of crypto’s total market cap, an increase of 127% over last year. Staked reports that thanks to the growth of the more eco-friendly PoS coins, “Annualized staking rewards increased by a stunning 939% to $14.7 billion. Investors would need to buy $860 billion worth of 10-year treasury bills to earn a similar return.”

Of course, investments in the crypto market are risky, partly due to high price volatility. But, the recent rise of “stablecoins” could remedy that risk. This crypto category focuses on price stability by pegging the coins to a currency like the dollar and has made staking and lending much lower risk for investors.

The Difference Between Crypto Lending and Crypto Staking

Both crypto staking and crypto lending offer a way for crypto investors to profit off their holdings passively and generate cash flow.

More About Crypto Lending

Crypto lending involves leasing your cryptocurrency out to borrowers via specific platforms. The platforms charge interest on the amount lent and pay a portion of their earnings to you. These loans are secured using the borrower’s crypto. 

Though crypto lending has inherent risk, the platforms reward you. For example, according to Barron's website, “Lending Bitcoin can generate annualized yields from 3% to 8%.” The return on smaller alt-coins can reach double digits.

You can also lend out stablecoins like USDC and USDT for attractive rates without the volatility of the currency itself. Sometimes as high as 12%. These returns are much more than the typical 0.5% that regular banks pay on savings accounts.

One advantage lending has over staking is choosing how long your coins are tied up. The term length for lending out your crypto generally ranges from one to ninety days.

More About Crypto Staking

Staking involves committing your tokens for use by the blockchain. Stakes are necessary for the network’s security infrastructure, and therefore participants are compensated with more of the coin they are staking.

Crypto staking usually happens in 30-day intervals, in which you commit your coins. You could compare it to earning interest from a CD (certificate of deposit), but with a more favorable rate!

An alternative called “liquid staking” is now coming online as well. This method, also known as “soft staking,” allows you to access your funds even while you're staking them. So it’s the best of both worlds.

Is it safe to lend or stake your coins?

Some dangers of crypto lending include the loan being defaulted one, coin volatility, and changing local crypto regulations. State regulators have been pressuring many crypto lending platforms over concerns that specific lending methods constitute the “offering of unlicensed securities.”

For this reason, you must ensure the crypto platforms you utilize are well-established and centralized. It is also safest for you to use a licensed platform in your country.

Additionally, even the largest and most established non-stable cryptocurrencies, like Bitcoin, remain highly volatile. The natural uncertainty of the crypto market means there are dangers that if your coins drop in value while you are lending, you won't be able to sell and limit your losses.

Finally, though staking does not have as many regulatory concerns as lending, there is still volatility risk. For example, if a coin rises or drops severely while being staked, you don't have the power to make transactions with it. For traders whose primary source of crypto income is from capital gains, crypto staking may induce a risk they aren't willing to take.

Platforms to Lend and Stake On

If you're interested in crypto lending or staking, you'll likely want to know some platforms where you can lend and stake. Here are some of them:

  • Coinbase – On the main Coinbase app or through the Coinbase website, you can stake Tezos, Cosmos, or ETH and earn up to 5%. If you want to lend your crypto, you can also use their Coinbase Wallet to do so or earn 4% APY on your USDC.
  • Gemini – By lending out your crypto to certain financial institutions, Gemini allows you to earn up to 8% APY on your crypto holdings. The feature is called Gemini Earn, and you receive interest daily (starting at 4 pm the next business day after you deposit your funds).
  • Binance – With Binance Earn, you can lend, stake, or even pool your cryptocurrency holdings to earn passive income.
  • KuCoin – Lending on KuCoin is built directly into the platform, allowing you to earn up to 25% APY on your coins. You can also do something called soft staking on KuCoin, where you receive staking rewards without ever needing to lock up your funds.
  • – You can both stake and lend with Crypto lending occurs through their Crypto Earn feature, and staking can be done directly from the app.
  • Celsius – Since its founding in 2017, Celsius has grown to become one of the world's most extensive crypto borrowing, lending, and earning platforms.
  • Kraken – Earn rewards on Kraken via crypto staking. As of now, Kraken offers crypto staking for over ten different cryptocurrencies.

Crypto As Part of the Financial Planning Process

Crypto lending and crypto staking are new ways to earn on your crypto holdings. These revenue streams offer lots of potential for gain with the corresponding risk.

However, they should only be considered as one element in your overall financial planning process.

Still, when approached with caution and reasonable expectations, both crypto lending and crypto staking can help make your money work for you.

Joe DiSanto is the founder of Play Louder! He has built multi-million dollar businesses, produced critically acclaimed documentaries and an Emmy-winning TV show, invested millions in real estate, and semi-retired at age 43. Now, Joe serves as a Fractional CFO for several creative firms and is sharing a lifetime of fiscal know-how via Play Louder, an invaluable resource that helps individuals and business owners increase their net worth and plan better for their future.