A crypto lending service started by Binance has raised concerns among crypto investors. The platform promises investors a maximum guaranteed 15% return on their investment, and some experts have warned against a platform that makes such promises to its clients.
Through the platform created by Binance, users of the trading service can earn interest on their crypto holdings with minimum risk.
Instead of having idle crypto holdings which are not earning anything, one can lend these holdings and earn passive income from them. There are a variety of lending terms that can be negotiated and once can choose the fixed terms that they view as most beneficial for them.
Binance made the announcement through a blog post. The post says that interest rates differ according to the particular crypto one decides to lend.
Binance’s native cryptocurrency, BNB, earns the highest returns at 15% and it is this promise that has investors questioning the legitimacy of the lending program.
On the other hand, it could influence more investors to buy Binance coin online and use it to earn passive income through the lending platform.
Terms of the lending platform
Binance will execute the first phase of the lending program on a first come first serve basis. The maturity term for these holdings will be 14 days and the holder will receive their interest payment immediately after the maturity of the loan.
According to Larry Cermak, the Director of Research at The Block, promising customers a guaranteed interest on their holdings with is never a good idea. It means that no matter how the market moves, a crypto holder will expect their holdings to grow.
“The interest rate for each product is 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝, so your crypto balance will always grow, regardless of how the market moves.” – CZ
Promising a guaranteed interest rate is never a good idea https://t.co/qTMMqvfnDn
— Larry Cermak (@lawmaster) August 26, 2019
Binance explains guaranteed returns
In response to the concerns raised by analysts about Binance’s promise of guaranteed returns, the firm’s CEO, Changpeng Zhao, said that all the cryptocurrency lent will go to margin borrows which are obliged to pay interest on the borrowed assets.
As a result, it is easy to give crypto holders a guarantee about the fixed interest they can earn from their cryptocurrency.
Lending on @binance goes to Margin borrowers, who pay the interests. Simple.
Very different from other guaranteed-return schemes. We don't have to look for another place to invest. That's why Margin is out first.
Spartans get it. https://t.co/y4Iy5iRRGC
— CZ Binance (@cz_binance) August 26, 2019
The lending program promises to be highly beneficial for crypto investors. It is expected that many investors will approach the platform with caution and wait to see if the promises made by Binance will bear fruit.
If Binance’s lending platform is a success, other crypto trading platforms will be looking at including a similar service in their exchanges.