Lent Coins Are Just Claims: Crypto Lending Risks and Returns Revealed

Crypto lending has become increasingly popular, promising high yields for investors who lend their cryptocurrencies. However, what you keep as an investor is not your coin itself but a claim to get it back.

This means that the value of your claim depends on the counterparty and the applicable law in case something goes wrong. In the European Union, the Markets in Crypto-Assets Regulation (MiCA) excludes lending and borrowing of crypto-assets from its scope, leaving them unregulated.

The return on investment comes from traders who want to leverage their positions, mainly by betting on rising prices. When many participants use leverage, lending yields rise, but this can be a warning sign rather than a badge of quality.