Lending and borrowing has become one of the most attractive areas in the world of digital currencies, and many platforms are offering such services. Loans are always accompanied by collateral, and it is interesting to know that the total funds locked in lending platforms have exceeded several billion dollars, which shows the interest of users in this area.
Although the world of crypto is still in its infancy and lending platforms are also very new, their activity in this field has led to the emergence of a new concept such as interest rate in the world of digital currencies, which attracts investors to this field.
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In traditional financial markets, the interest rate in a way indicates the economic health of the country and determines the basis of many asset valuation models. The interest rate is also used as an indicator to calculate the profitability of future projects and investments, and it has a direct impact on people’s interest in receiving and paying loans.
The concept of digital currency interest rates
When a person or an organization wants to get a loan, they agree to pay a percentage of the loan amount in addition to the principal amount to the lender, which is called ” interest rate” .
Interest rates also exist in the world of digital currencies and make users want to lend their digital assets to others in order to earn more profit. That is, this work is more profitable than keeping currencies in the wallet, because in addition to increasing the price of cryptocurrencies in the long term, their value also increases by receiving interest from loans. In fact, the interest rate creates a kind of motivation among the users and causes that part of the funds that were stagnant and unused to enter a new financial cycle.
Even though lending platforms have good returns for investors and are also driving the growth of the crypto industry, they still account for a very small percentage of the market and are still in their infancy. Even though the crypto market cap has been in the trillions for a few months now, the lending sector is still in the $20 billion range.
The small volume of circulating capital is one of the problems of this fledgling field. Other important factors that show the maturity of an area are “Interest rate Variance” and “Interest rate Volatility”, which we will talk more about later.