EDEN IAS

CRYPTO LENDING

UPSC CURRENT AFFAIRS | CRYPTO LENDING | 17TH JUNE | INDIAN EXPRESS

SYLLABUS SECTION: GS III (ECONOMY)

WHY IN THE NEWS?

Recently, a major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers, citing “extreme” market conditions, sparking a sell-off across crypto markets.

WHAT IS CRYPTO LENDING?

  • Celsius is a crypto lender, which essentially means it is a bank of the crypto world.
  • Crypto lender allows customers to deposit their coins with them for interest, and then lend out cryptocurrencies to earn a return.

Crypto lenders make money by lending – also for a fee, typically between 5%-10%.

WHO ARE THE BIGGEST PLAYERS? 

  • New Jersey-based Celsius, New York-based Genesis, U.S. lender BlockFi and London-based Nexo.
  • Present status: 
  • Crypto lending has boomed over the past two years, along with as decentralized finance, or “Defi,” platforms.
  • DeFi and crypto lending both tout a vision of financial services where lenders and borrowers bypass the traditional financial firms that act as gatekeepers for loans or other products.
BENEFITS:
  • Savings at traditional banks offer paltry returns due to historically low-interest rates, crypto lenders offer much higher returns – at the very top end as much as 20%, though rates depend on the tokens being deposited.
Risks: 
  • Crypto lenders aren’t overseen by financial regulators.
  • Crypto lenders also face other risks, from volatility in crypto markets than can hit the value of savings to tech failures and hacks.
  • It is throwing up risks for investors as it evolves to mirror traditional markets.
  • Patchy reliability and problems operating at scale.
  • Lack of disclosure of products and systems.

Read more: UPSC CURRENT AFFAIRS

SOURCE: INDIAN EXPRESS

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