Bitcoiners have dreamed of lending and earning interest on their coins for over a decade. With companies such as BlockFi offering juicy 6 percent interest rates, has this dream finally come true? Or is this just a minefield, where you’re just one step away from disaster? Let’s peel back some of the layers of this onion to try to better understand today’s bitcoin lending landscape, so you can make a more informed decision before parting ways with your hard-earned sats in hopes of collecting more sats.
First, let’s review some fundamentals. All parties involved in a business deal should have a shared and equal understanding of what is expected to happen and the risks involved. Lending is just like any other business deal. If you loan me your bitcoin, you should expect me to tell you exactly what I will do with your money, what risks are involved, and what happens if I don’t repay you. It takes some time to work through the details, but that’s where the devil lies. Details matter.
Imagine I ask you to lend me 10 bitcoin. I should be able to tell you not only that I plan to use your money to buy a house, but I will also tell you exactly which house I will buy. This way, if I fail to repay the loan, you can place a lien (a legal claim) on the title of the property