Crypto lending platforms increase rates due to higher borrowing demand

Quick Take

  • Crypto lenders are increasing rates following a drop-off during the first half of the year. 
  • Lenders noted a lack of liquidity in the market following the credit crisis in June. 

Savings rates on crypto holdings have increased across lending platforms, despite several high-profile lending firms collapsing in June and July.  

Following the collapse of Terra, lending companies faced extreme difficulty operating. Many were forced to slash their rates to encourage more borrowing. Yet now this trend is starting to reverse, as lending rates are becoming more lucrative. 

How rates have changed 

Rates have largely increased across major lending platforms. BlockFi, Gemini and all increased rates in August while Ledn has kept rates unchanged throughout the turbulence.  

BlockFi increased rates on BTC, UNI, USDT as well as stablecoins USDC, GUSD, PAX and BUSD for August. The increases varied from 0.5% to as high as 2%. The rates for uniswap on all of its tiers were increased.

Nexo increased the yields it offers on bitcoin and chainlink balances while lowering the balance limits, meaning customers will be able to access higher rates at lower balance levels. For example, gold level customers will receive 3.5% on bitcoin balances up to $200,000 and 2% on anything above this.  

The firm also introduced balance limits for ether, stablecoins and pax gold on July 1, calling it a “sustainable solution for us to maintain our top rates, rather than simply slashing our yields altogether.” The lender wasn’t open to discussing rates at this time when contacted by The Block. 

Toronto-based Ledn’s rates were unchanged as of August 1, with the interest rate for bitcoin savings accounts remaining at 5.25% for balances up to 0.1 BTC and 2% for balances over this. Rates on USDC accounts were kept at 7.5% for all balances. 

Why are rates increasing? 

Lending rates increased because of changing market dynamics, according to multiple lenders. 

One reason offered by both Ledn and BlockFi is the lack of liquidity in the lending market at present. With Celsius and Voyager having filed for bankruptcy and other firms, such as Vauld, Babel, Zipmex and now Hodlnaut all facing similar issues, borrowing options are scarcer.  

Ledn’s co-founder and chief strategy officer Mauricio Di Bartolomeo told The Block that lending demand now outpaces supply as a significant amount of supply has come off the market. With this, margins and pricing have returned to more sustainable levels.  

BlockFi’s global head of trading Joe Hickey shared a similar sentiment, telling The Block there was a lot more supply in May, which pushed rates lower. Echoing his firm’s CEO Zac Prince, Hickey said, “it’s now much more of a lender's market than a borrower’s market, back then [May] it was more of a borrower’s market.” 

Ledn’s Di Bartolomeo shares the view that the lending market in May was a borrower's market. During this period, lenders were offering borrowing rates well below sustainable levels, which meant lenders were taking an unprecedented risk in offering out loans. Now things are starting to balance out.

How will The Merge affect lending rates? 

As The Merge approaches, there may be further rate increases on the horizon. 

Specific tokens have seen an uptick in volume and interest, according to Joe Hickey. Uniswap, the decentralized finance platform, has seen platform trading volumes in line with even Coinbase recently. BlockFi increased its rates offered on UNI in line with the increased volume, and The Merge might spur similar increases from other lenders. 

Joe Hickey earmarked the potential for future increases in more tokens, like ether, noting The Merge and staking rewards as contributing factors.  

Following the merge, and Ethereum moving to proof-of-stake, ether investors will be able to take advantage of staking rewards between 6% and 9%, which should enable lenders to offer higher savings rates, says Hickey. At present staking rewards are below this at about 4.1%. 


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