Crypto lending platforms add liquidity but also increase market size

 Crypto lending platforms add liquidity but also increase market size


  • A brief introduction to how Crypto Lending Platforms (CLPs) make money and pay interest to clients.
  • CLPs gain access to a pool of user assets and borrow, trade, lend, and invest in that pool to generate income.
  • My biggest concern is the cryptocurrency subprime mortgage loan crisis due to fault tolerant CLP systems.
  • Detailed description of the loan agreement and points of failure of the automatic collateral requirement in the loan agreement and the CLP collateral agreement.


Crypto Lending Platforms (CLPs) have added a whole new level to the crypto ecosystem by adding liquidity for the market, interest payments for hodlers, services for institutional investors, and custody services.

I store some of my cryptocurrency on BlockFi, Nexo (NEXO-USD) and cold storage. I love the interest I get from BlockFi and Nexo and keep Nexo.

I like to call BlockFi and Nexo Crypto pawnshops. They make money by giving loans at higher rates than the interest they pay on their savings accounts. Another large segment is institutional investors. CLPs provide loans, exchange and borrow from and from institutional investors to provide liquidity and funds to attract investment. CLPs provide liquidity and leverage to institutional investors and appear to be very profitable to them.

he is a business model

Before storing cryptocurrency on one of these platforms, it is important to know what we are getting into. CLP usually has an “Asset Use Consent” as shown in the below excerpt from the BlockFi Account Terms and Conditions. The User agrees that BlockFi can access the User's assets to borrow / lend / exchange / invest / reinvest / ... these assets.

The institutional side seems very lucrative, but the CLP doesn't share too much information about this segment. This makes sense as they can negotiate fees and interest for institutions depending on the size, duration, and liquidity required.

What you need to know about the loan agreement

BlockFi, Nexo and other CLPs will not work by default because they use the user's crypto assets as collateral.

 Crypto lending platforms add liquidity but also increase market size