The world’s biggest cryptocurrency exchange Binance has started a crypto lending program with teaser rates of between 7% to 15%. The teaser rates are for BNB (Binance exchange’s token), Tether, and Ethereum Classic, and they are valid for a limited 14-day period.
In crypto-lending, users lend their idle cryptocurrency to exchanges or service providers for a certain period of time and earn interest on it. Exchanges use the lent coins for various purposes, such as utilizing them in Masternodes of various cryptocurrencies to earn more cryptos or performing market-making activities. Binance’s Terms of Service states that the coins from its lending business will be used in the “cryptocurrency leveraged borrowing business” on Binance.com.
A Move to Boost Prices
The lending program is expected to go live on August 28. Users of the exchange will be able to earn a 15% interest when they lend their BNBs to the exchange. For Tether, they will earn 10% interest and Ethereum Classic will earn 7% interest on the program. The offer comes with a cap per user. In total, the exchange will only accept 200,000 BNBs, 10 million Tethers, and 20,000 Ethereum Classic coins.
Jeff Dorman, chief investment officer at Arca, an asset management firm based in LA told Bloomberg that the move will lead to stickier customers and more revenue for the exchange. This is because Binance will serve as a one-stop shop for their needs, from trading to custody and earning passive income from their cryptocurrencies. Binance already has a trading platform in the form of its exchange, a margin lending business, and a custody solution.
Josh Gnaizda, founder of Crypto Fund Research, said the move will boost the price for BNB because it creates more use cases and, consequently, more velocity for circulation. The prices of coins, such as Bitcoin and Ethereum’s Ether, that have not been included in Binance’s lending program will not benefit much from the program.
Aaron Brown, who is a writer for Bloomberg Opinion and an investor, believes that this move could help to push more users towards margin trading. Brown noted that when a user borrowed coins from the exchange, they usually paid rates of about 100% annually. Thus, Binance still had a large spread even when offering 15%. It would be more attractive for users to buy coins on margin and lend it back to the exchange for high interest rates.
But it is unlikely that the exchange will be able to sustain the lending rates. Binance’s competition in crypto-lending BlockFi offers rates of 6.2% for crypto lending of coins like Bitcoin and Ethereum’s Ether. “In terms of the yield being offered, 15% is incredibly high, and is likely unsustainable as competition will always bring rates down,” Dorman from Arca told Bloomberg.