What’s Crypto Lending, and Why Did Investors Get Burned?

Savers frustrated with the paltry yields offered by banks in recent years appeared to have found a solution: so-called crypto lending accounts that can pay interest rates of 18% or even more. Millions piled into these products, introducing a whole new cohort of investors to cryptocurrencies. Some came to regret their move after crypto lending firms Celsius Network, Babel Finance and Vauld succumbed to a meltdown in digital assets and halted customer withdrawals.

At first blush, crypto lending accounts look a lot like savings accounts offered by banks, but with cryptocurrencies instead of traditional money. An investor opens an account, deposits cryptocurrency and earns interest. Many deposits are in Bitcoin, while other investors use stablecoins -- tokens whose price is often pegged at $1. Others use lesser-known, more volatile cryptocurrencies. The accounts typically pay interest in the same currencies that are deposited. Some have rates that change daily. Others offer a fixed rate and the money is locked up for a fixed period.