DeFi lending is one of the best ways you can earn passive income in Nigeria. It’s a process wherein cryptocurrency users can lend or borrow assets for profit. To ensure the process is legitimate even in a trustless environment, smart contracts are used to ensure both parties adhere to the terms using collateral.
Are you interested in DeFi lending? Discover all there is to know about it here at Crypto in Afrika.
DeFi lending explained: What is DeFi lending?
DeFi Lending is similar to bank lending where you borrow funds from investors with interest. But instead of fiat money, you borrow digital assets and the borrowers conduct their transactions on a decentralised application (dApp).
How does DeFi lending work in Nigeria?
The process of Decentralized Finance (DeFi) lending in Nigeria is fairly simple. The first step is to find a reliable dApp where you can conduct the transaction.
Unlike traditional banks, DeFi allows you to lend your assets without the need for intermediaries. This also means you are responsible for identifying the risks of your investment and the losses you attain.
During the process, it’s also important to use a platform that supports the crypto you want to lend or borrow. Additionally, you should also pay attention to aspects such as the lending pool, collateral and interest rates before making your transactions.
How to earn money with DeFi in Nigeria
Some crypto investors have successfully increased their assets through DeFi lending. Find out the steps on how to do it below:
- Find a DeFi lending platform
The first step to DeFi lending is finding a reliable lending platform. In these platforms, smart contracts hold the collateral assets until the borrowed crypto is returned. Additionally, make sure to store your assets in a secure cryptocurrency wallet.
- Add to the DeFi lending pool to earn interest
When you’re ready to loan out your crypto, check the interest rates to know how much you can earn and then add your assets to a lending pool. Afterwards, you can easily earn passive income with the interest from lending your assets.
- Employ strategies to increase yield in Nigerian DeFi lending
As an investor, you must maximise your earnings by employing yield farming strategies to see better returns. For this to be possible, you should look at the yield aggregator, investing risks, lending pools, risk exposure, and more.
Additionally, you should establish your risk tolerance and investment goals to make smarter decisions throughout your investment. Conduct thorough research to find good strategies to diversify your process.
Alternatively, you can also find the best DeFi projects for passive income and copy their strategies for similar results.
How to select the most reliable DeFi lending platform in Nigeria
With your goals and risk tolerance in mind, take a look at the factors to consider while looking for a DeFi crypto lending platform:
This is the first and most important thing to consider when choosing a DeFi lending platform. Before registering, make sure the platform’s users, both investors and borrowers alike, are satisfied with the services and security provided to them.
The best way to find out more about a platform’s reputation is to read customer records and reviews. You can also check video reviews on YouTube where users share their first-hand experience on the platform.
Reputation is not the only essential factor you should pay attention to. Aside from it, you should also find out if a platform is secure, and one of the ways to know this is by checking whether it is a genuine decentralised app. Additionally, you should take a look at how the platform intends to store the crypto funds it receives.
To check the smart contracts of the platform, find out if they conduct regular audits. Additionally, you can inspect automated security scans to see whether the best practices in terms of security are being followed or not.
- Interest rates
Interest rates refer to investment returns or the amount you can expect to receive. Currently, this ranges between 1% to 15% in most lending platforms in the country. Additionally, DeFi lending rates also differ depending on the crypto option used. The best way to determine interest rates is by checking the Annual Percentage Yield (APY).
Nowadays, it’s practically impossible to find platforms that offer their services free of charge. The same is true for platforms lending DeFi; expect to pay a certain amount to gain access to the platform’s services. However, rest assured that these fees are likely to be low. Most platforms only require you to pay enough to maintain the app.
- User experience
The fifth important factor to consider is user experience (UI), which refers to the level of ease or difficulty when using the platform. The criteria to follow when checking for the platform UI includes design, colour schemes, readability, and functionality.
To check the platform’s UI, you can always read customer reviews or video reviews on YouTube. However, the best way to find out if it has an impressive UI is by using it yourself. This gives you first-hand knowledge about whether it functions how you need it to.
As part of the platform’s user interface, you should also ensure they have responsive customer support. This is significant so you have help when you face complications while using the platform.
Is it worth it to use DeFi lending to make passive income in Nigeria?
There are a lot of advantages and disadvantages to participating in DeFi lending. If you’re considering this as a way to earn passive income, then you need to know all the pros and cons. We’ve listed them down to help you determine whether you should participate in it or not:
Advantages of DeFi lending
The great thing about DeFi lending platforms is that it’s inclusive to everybody. The only primary requirement is for you to have enough crypto assets saved up in your crypto wallet. This is unlike traditional banking where you’re required to submit various documents before becoming eligible for lending.
- Users have full control over their assets
Another great thing about DeFi lending is you have control over your assets. That means you can decide what you want to do with your crypto assets and invest the amount you want. This is unlike most traditional financial systems wherein there’s typically a government or third-party oversight and intermediaries that make it harder to access your assets.
- Smart contracts can be programmed for specific agreements
When you invest your crypto assets in DeFi lending, the smart contracts issued for it can be programmed to meet specific requirements. Thanks to this DeFi lending protocol, the borrower’s collateral remains locked until they fulfil the agreement and return the crypto assets they borrowed.
- Real-time transactions
Every transaction made for regulated DeFi lending occurs in real time and the blockchain reflects that. It means you can check your assets and earnings instantly, and the latest updates on your assets are reflected on the blockchain.
Disadvantages of DeFi lending
- DeFi technology is relatively new
Much like the overall crypto market, DeFi technology is still relatively new. This means that there are still flaws that are being improved on by the day. As such, it’s not uncommon to face complications on the dApp that will take time to resolve.
Despite this, there are reliable DeFi lending platforms out there that ensure your transactions run smoothly. Additionally, more platforms are improving to ensure users have all the tools they need for the DeFi lending process.
- Consumer protection is lacklustre
One big problem with DeFi lending is the lack of consumer protection. Compared to traditional financial services where systems are in place to resolve consumer disputes, this is not an aspect available to crypto users.
The reason for this is that the crypto market is largely anonymous, which means it’s nearly impossible to get back your crypto assets once you’ve sent them out.
- Threat of hacking
Hacking is one of the biggest concerns when it comes to crypto since there have been reports of suspicious entities stealing millions in crypto in the past. However, the blockchain is constantly being improved upon, which means that platforms are becoming less susceptible to hacking and other cyberattacks.
- Market is volatile
The biggest issue within the crypto market in general is its volatile nature. Since the value of crypto is constantly changing, the value of the assets you invest in DeFi lending also changes.
This can become an issue if the crypto you staked for lending loses its original value. However, this issue is less of a concern for investors that stake stablecoins since these hold the same value as real-world commodities such as fiat, gold, or others.
- Varying crypto regulations
While DeFi lending is widely accessible for those with crypto assets, there are still varying regulations about crypto in various regions that make it difficult to access. Fortunately, more nations are becoming accepting of crypto as time goes by. This means the crypto market can expand to more locations and offer DeFi lending services.
Grow your assets through DeFi lending today
Do you want to earn crypto passive income in Nigeria? If you’re a crypto enthusiast with enough assets, then you should consider DeFi lending as a viable option. With DeFi lending, you can lend your crypto and earn through interest rates.
What are the risks of DeFi Lending and how to reduce them?
Most of the risks of DeFi lending are an issue faced by the crypto market as a whole. The first of which is the volatility of the market, which can result in the devaluation of the value of the crypto you lend. To combat this, you can lend stablecoin, which holds the same value as real-life commodities such as fiat currency, gold, and others.
What is DeFi lending income?
When it comes to DeFi lending, investors who lend their crypto can earn DeFi passive income through interest rates. You can find out the percentage of the interest rate you can earn depending on the DeFi lending platform you’re using. Whichever it is, it should have a table where the interest rates are outlined based on the crypto you plan to stake.
What are the disadvantages of DeFi lending?
There are a few disadvantages to DeFi lending, which include:
- Market volatility
- Platform hacking
- Lack of consumer protection.
However, these issues are easily resolved when you make your transactions on the best DeFi lending platform. That’s why it’s important to take the time to find the right platform to lend your crypto investments.