Understanding Cryptocurrency Lending: A New Way to Earn Passive Income

Borrowing is the backbone of contemporary capitalism and financial markets. While many newcomers to the world of finance are mostly familiar with consumer loans, you can use borrowing as a financial instrument to avoid capital gains tax, protect market positions from liquidation if they are leveraged, or use borrowed assets to trade or invest them at a higher risk premium.

In traditional markets, market participants have to rely on intermediaries (usually banks) to do their business. Cryptocurrency lending is a different beast altogether. Here, all transactions occur in a trustless and permissionless manner, allowing DeFi users to interact without any third parties. It can be a liberating experience if you are tired of high interest rates, risky loans, and potential corruption.

As of the time of writing in March 2025, lending is the biggest category of DeFi protocols, with over 498 projects offering loans and the total value locked across all pools exceeding $39 billion.

What are crypto lending platforms?

There are many reasons for a DeFi investor to take out a long. Let’s talk about some of them:

• You may need to cover an unexpected expense or an emergency.
• Funds may be required to cover a failing market position and protect it from liquidation.
• Some users like the idea of using their underutilized assets as collateral to engage in other investment operations.

In traditional markets, you would have to go to an institution to apply for a loan. Borrowing is often associated with stripping off any layers of privacy that your personal information may have. Strict AML/KYC guidelines demand centralized institutions to gather personal details from you.

Regulatory aspects of crypto lending are still poorly defined, allowing many market participants to access credit easier without revealing sensitive information. Since users interact via smart contracts in a trustless and permissionless fashion, you don’t need intermediaries, and interest rates will be lower for borrowers while staying consistently high for lenders.

Blockchain is a great example of how technological advancements are influencing the growth of cryptocurrency lending. The decentralized and anonymous nature of blockchain allows users to enjoy all the benefits of a sprawling lending without the downsides commonly associated with taking out a loan. Unfortunately, the DeFi lending scene has its limitations and can be risky in some cases. Do your own research before investing in any project, and stay safe!

Smart contracts in lending

All of this magic of autonomy and self-custody happens thanks to the existence of smart contracts. These tiny programs interact with the chain and users to ensure the security, consistency, and immutability of transactions occurring between lenders and borrowers.

How does it work?

1. A protocol creates a pool operated by a smart contract that conducts a transaction between participants when certain conditions are met.
2. When lenders put their money into the pool, they receive corresponding utility tokens that signify their ownership of assets in the pool. These are called aTokens for Aave or cTokens for Compound.
3. Price data is fed to the pool by oracles or other entities that can provide reliable market data so that pools can adjust collateral requirements and interest rates accordingly.
4. A borrower provides collateral (usually at least 10% higher in value than the loan itself) and takes out the necessary amount of funds in target assets.
5. Lenders collect interest according to the specified parameters of the loan. If a loan becomes a failure, investors are reimbursed with collateral.

Due to this overcollateralization of debt, you can earn money with cryptocurrency lending with a surprisingly high rate of success. Pools adjust collateral value based on the current market situation to protect lenders. For instance, taking out ETH while using any other asset as collateral on Aave can be done at an LTV of up to 80.5%. LTV means that for each 1 ETH in collateral, you will receive 0.805 ETH.

Of course, market volatility and lending create a very explosive pair. Since the value of collateral is regularly adjusted, it is possible for a loan to be liquidated, which happens under some extreme circumstances. Borrowers must be mindful of potential risks and take out loans only during relatively calm periods in the market. Smart contracts are not people and cannot be negotiated with!

Can you build passive income from crypto lending?

Crypto lending protocols are some of the safest out there. All loans are overcollateralized and have high APY without burdening borrowers with insurmountable interest. It is possible to use lending protocols as the foundation of any portfolio focused on digital assets.

Let’s take a look at some of the most popular lending protocols out there and check out some of their pools.

1. Aave is the biggest lending platform in the DeFi ecosystem. It has a massive $16.95 billion TVL and generates up to $1.5 million in weekly revenue. Aave offers 164 pools averaging 1.33% APY. One of the best options here is the USDC pool with a solid 2.76% APY and a solid 30-day mean verage APY of 3.72% in March 2025.
2. Justlend is the premier lending protocol on Tron. Here, you can enjoy high returns and lucrative rewards on USDD investments. For instance, the USDD pool that has a TVL of over $184 million offers a 1.11% base APY and up to 9.71% in rewards. The pool overperformed in March, delivering 15.15% APY on average. This particular option demonstrates the strong earning potential in crypto lending.
3. Compound Finance is one of the oldest lending protocols out there. Here, you can find a plethora of stablecoin pools that offer great returns with an impressive level of consistency. Investing in the USDT pool yields 3.32% as base and 0.53% in COMP rewards. You can also put money into the USDC pool for a 3.98% base APY and up to 0.18% in COMP rewards. The robust track record of this protocol emphasizes the importance of community trust and platform reputation in the success of lending services.

You don’t have to focus only on direct investments in various lending protocols. The DeFi ecosystem is mature enough to have various products that are aimed at the audience of investors seeking low-risk solutions.

You can go to the Rivo yield marketplace to look for the best strategies that are focused on lending. While you can find a plethora of great investment options for all types of portfolios and risk tolerance levels, we recommend taking a look at the Gearbox USDC Lending Market, which is offering a 4.9% APY and has a Rivo trust score of 95, indicating a high level of reliability and safety.

To avoid many risks of cryptocurrency lending, it is a good idea to invest in projects that deserve your trust. Rivo makes sure to showcase only the most reliable strategies that have the necessary level of transparency, technological prowess, and novelty to catch the attention of contemporary investors. Multiple investment options that are focused on lending and featured on Rivo include Resolv USR Lending, Savings USDS Lending, Fluid GHO Lending, and many others.

The main takeaway

Many crypto enthusiasts are successfully building portfolios that are strongly focused on lending protocols. Investors are starting to feel the impact of macroeconomic trends on the cryptocurrency lending market. It overtook all other DeFi categories and has a higher combined TVL of even liquid staking, which was all the rage just a year ago. Currently, the TVL is comparable to the 2024 level at $39 billion.

We strongly believe that contemporary investors must focus their attention on time-tested investment tools to form the backbone of their portfolios. Learn how to stay informed about new developments and trends in cryptocurrency lending!

We also invite you to check out the Rivo Earn page and look for the best investment strategies focused on lending pools. It is a great way to get started and invest in the safest instruments without spending time and effort researching every single protocol out there personally!