How to Lend Cryptocurrency and Earn Interest: A Practical Guide for 2025

Want to make your cryptocurrency work for you instead of just sitting in a wallet? Lending crypto to earn interest isn’t science fiction-it’s a real way to generate passive income right now. You’re not selling your Bitcoin or Ethereum. You’re letting someone else use it, and in return, you get paid. Simple. But not without risks. If you’ve seen ads promising 10% APY on your USDC and wondered if it’s too good to be true, you’re right to ask. Let’s cut through the noise and show you exactly how it works, who to trust, and what could go wrong.

How Crypto Lending Actually Works

Crypto lending is like a bank, but instead of dollars, you’re lending digital assets. Platforms take your Bitcoin, Ethereum, or stablecoins and lend them out to borrowers-often traders, miners, or DeFi protocols that need liquidity. In return, they pay you interest, usually daily or monthly. The interest comes from the spread between what the platform charges borrowers and what it pays you.

There are two main ways this happens: centralized (CeFi) and decentralized (DeFi). CeFi platforms like Nexo, Ledn, and YouHodler act like digital banks. You deposit your crypto, they hold it in their wallets, and they pay you interest. DeFi platforms like Aave and Compound use smart contracts on blockchains. You deposit into a liquidity pool, and the protocol automatically matches lenders with borrowers. You keep control of your wallet, but you’re responsible for gas fees and understanding how the contract works.

In 2025, the average APY for stablecoins like USDC and USDT sits between 4% and 7%. Bitcoin earns 1% to 5%, and Ethereum gets 1.5% to 5%. Rates change often. Nexo dropped its BTC rate from 6% to 2.5% in early 2024. That’s not unusual. What matters is consistency and safety, not the highest headline number.

Choosing Between CeFi and DeFi

The biggest decision you’ll make is whether to use a centralized platform or a decentralized one. They’re not better or worse-they’re different.

CeFi platforms are easier. You sign up, do KYC (know your customer), deposit your crypto, and start earning. Most have mobile apps, customer support, and instant withdrawals. Nexo pays interest daily and lets you take out crypto-backed loans instantly. YouHodler offers up to 10.52% APY on USDC, but only if you lock it for 30 days. The trade-off? You’re trusting the company with your assets. If they go under, like Celsius did in 2022, you could lose everything. Celsius froze $8 billion in user funds. That’s not a hypothetical risk-it happened.

DeFi platforms like Aave and Compound don’t hold your crypto. Your funds stay in your wallet, and smart contracts handle everything. That means no single company can steal or freeze your money. But you’re exposed to other risks: smart contract bugs, Ethereum gas spikes, and protocol-level failures. In March 2023, Euler Finance lost $600 million because of a flawed lending algorithm. No one stole it. The code just didn’t work as expected.

If you’re new, start with CeFi. If you’re comfortable with wallets, gas fees, and reading contract audits, DeFi gives you more control and lower counterparty risk.

Which Crypto Should You Lend?

Not all crypto is equal when it comes to lending. Your choice affects your risk and reward.

Stablecoins (USDC, USDT, DAI) are the most popular. They’re pegged to the U.S. dollar, so their value doesn’t swing. That means you earn interest without worrying about your principal dropping. USDC, issued by Circle, is backed by audited reserves and is the most trusted. In 2025, you can earn 5-7% APY on USDC across most major platforms. USDT pays slightly less, around 4-6%, because of past concerns about its reserves.

Bitcoin and Ethereum offer lower yields-usually under 5%-but you keep exposure to price appreciation. If Bitcoin goes up 20% and you earn 3% interest, you’re ahead on both fronts. But if it drops 30%, your interest doesn’t make up for the loss. These are better for long-term holders who want to earn on idle assets.

Altcoins like Solana or Polygon sometimes offer 10%+ APY. But they’re risky. Low liquidity means platforms can’t easily lend them out. If demand drops, the platform may suspend lending or slash rates. Avoid lending altcoins unless you understand the token’s market depth and the platform’s history with it.

Top Platforms in 2025 (CeFi & DeFi)

Here’s a quick look at what’s working now:

Comparison of Leading Crypto Lending Platforms in 2025

Platform	Type	Best For	APY (USDC)	Min Deposit	Withdrawal Time	Key Risk
Nexo	CeFi	Easy access, instant loans	6.5%	$10	24 hours	Counterparty risk
Ledn	CeFi	Bitcoin-focused, high LTV loans	5.8%	$100	1-2 days	Regulatory uncertainty
YouHodler	CeFi	High yields on locked deposits	10.52%	$10	48 hours	Rate volatility
Aave	DeFi	Self-custody, transparency	5.2%	None	Instant	Smart contract risk
Compound	DeFi	Proven protocol, low fees	4.7%	None	Instant	Gas fees on Ethereum

Nexo and Ledn are top picks for beginners. Both have Proof of Reserves audits (meaning they publicly prove they hold your assets). Aave is the safest DeFi option-it’s been live since 2020 with no major exploits. Compound is older and simpler, but less user-friendly.

How to Start Lending (Step-by-Step)

Here’s how to get started, whether you pick CeFi or DeFi.

1. Choose your platform. Pick one based on your risk tolerance. If you want simplicity, go with Nexo or Ledn. If you want control, use Aave.
2. Set up your wallet or account. For CeFi: sign up, verify your identity (KYC), and link a bank or card. For DeFi: install MetaMask or Coinbase Wallet, fund it with ETH for gas, and connect it to the protocol.
3. Deposit your crypto. Transfer your USDC, BTC, or ETH to the platform. CeFi platforms will show a deposit address. DeFi platforms will prompt you to approve the transaction in your wallet.
4. Confirm your deposit. Wait for the transaction to confirm. CeFi platforms usually credit your account within minutes. DeFi platforms show your balance in the liquidity pool immediately.
5. Start earning. Interest accrues daily. You can usually see your earnings in your dashboard. Withdraw anytime-unless you’re in a locked term.

For DeFi, you’ll pay gas fees on Ethereum. Right now, that’s $1-$10 per deposit. On Polygon or Arbitrum, it’s under $0.10. Use those chains if you’re lending small amounts.

Real Risks You Can’t Ignore

Crypto lending sounds easy, but it’s not risk-free.

Platform failure. Celsius, BlockFi, and Voyager all collapsed in 2022. Users lost access to billions. Even platforms with audits aren’t immune. If a platform lends too much or invests poorly, it can run out of cash.

Rate cuts. Platforms can lower your APY anytime. Nexo changed BTC rates 17 times in 2023. You’re not locked into a rate unless you choose a fixed-term product.

Withdrawal freezes. During market crashes, platforms may pause withdrawals to avoid a bank-run scenario. That’s what happened to Celsius on June 12, 2022. You could be locked out for months-or forever.

Regulatory crackdowns. The SEC is treating many crypto lending products as unregistered securities. BlockFi paid a $100 million fine. Coinbase is being sued. If your platform gets shut down, you may not get your money back.

Taxes. In the U.S., Canada, Australia, and the EU, interest earned on crypto is taxable income. The IRS now asks on Form 1040: “Did you receive any digital asset as income?” You need to track every payment. Use tools like Koinly or CoinTracker.

What the Experts Say in 2025

Stani Kulechov, founder of Aave, says DeFi lending has processed over $100 billion in loans with less than 0.1% default rate-thanks to overcollateralization. Borrowers must put up more value than they borrow. If Bitcoin drops 20%, the system automatically sells part of their collateral to cover the loan.

But SEC Chair Gary Gensler still calls crypto lending “a regulatory minefield.” He argues most platforms aren’t registered as securities issuers or banks. That’s why the EU introduced MiCA in December 2024, requiring platforms to hold 2% capital reserves. The U.S. still has no clear rules.

Dr. Garrick Hileman from Blockchain.com found crypto lending yields have dropped 63% since 2021. The era of 12% APY is over. The new normal is 3-6%. That’s still better than savings accounts-but you need to be realistic.

Smart Strategies for 2025

Don’t just dump all your crypto into one platform. Here’s how to do it smarter:

• Diversify platforms. Put half your lending funds in Nexo, half in Aave. If one fails, you’re not wiped out.
• Stick to stablecoins. They’re the safest bet for pure interest. You’re not gambling on price.
• Never lend more than you can afford to lose. Treat it like high-yield bonds-not a savings account.
• Use cold storage for the rest. Keep 80% of your crypto in a hardware wallet. Only lend what you’re okay with losing.
• Watch for audits. Nexo, Ledn, and Bitfinex publish monthly Proof of Reserves. Avoid platforms that don’t.

Final Thoughts

Lending crypto for interest is one of the few ways to earn passive income in crypto without mining, staking, or trading. It’s not a get-rich-quick scheme. It’s a low-to-moderate risk way to make your idle assets productive.

The best strategy? Start small. Lend $500 in USDC on Nexo or Aave. See how it works. Track your earnings. Learn the interface. Then scale up. Avoid platforms promising 15% APY. If it sounds too good to be true, it probably is.

Crypto lending won’t replace banks. But in 2025, it’s a legitimate tool for those who understand the trade-offs. Know the risks. Pick wisely. And never stop learning.