Binance P2P Lending Platform: How it works
Binance keeps helping the overall
crypto market advance in strides, rather than steps, by adding useful, but
until now somewhat niche, features to one of the largest exchanges in the
world.
As part of Binance’s 2.0 rollout,
which saw the implementation of a distributed crypto exchange that uses the
blockchain itself, Binance’s P2P Lending Platform is yet another step in the
road towards creating a stable cryptocurrency economy and, with it, making mass
crypto adoption a reality.
What
is a P2P Lending Platform?
Perhaps Binance’s main failure when
implementing this new feature was its given name. While the community has been
using the term for a while now, the phrase “P2P Lending Platform” doesn’t
really mean anything for your average person. This leads many people to think
said feature is likely useless – or, since it has “P2P” in it, perhaps part of
some distributed system they don’t need.
A P2P Lending Platform is an online
platform that allows its customers to both lend and borrow their liquid assets.
These systems generally match people with money to lend with people who need
loans, serving as intermediaries and offering a degree of security for the
lender. Lenders receive interests on the money they lend, which can be
calculated by day until the loan is paid or a set amount if the loan lasts a
fixed time.
How
does this P2P lending work?
Binance’s P2P lending platform does
just that, only using cryptocurrencies instead of fiat currencies. It allows people
holding cryptocurrencies to deposit it in their Binance Lending accounts and
earn interests on a daily basis for flexible deposits or, if they choose a
fixed-term deposit, a larger interest once the timeframe is over.
A difference between some regular P2P
lending systems and Binance’s is that you don’t really lend your money to a
third party – instead, you lend it to Binance. Binance then decides whether to
offer a loan to somebody else with that money, to keep it as liquid funds, or
to use it as part of their own leverage trading system.
In other words, the contract is
between Binance and you, and if the third party defaults on their loan, that’s
Binance’s business. You get to keep your crypto safe no matter what, and the
only risk you take is your tokens losing value during the duration of the
contract, and that’s only if you choose a fixed-term deposit. For flexible
deposits, you can withdraw your tokens to the main exchange instantly at any
time.
Getting
paid interests for putting money in an account… this sounds familiar
That’s because that’s exactly how
saving accounts work. Banks use the money the have from saving accounts to
maintain liquidity, to offer loans to third parties, or to invest as they see
fit. A part of the proceeds from these transactions are given to the
accountholder as the saving account’s (or fixed-term deposit’s) interest rate.
What Binance is offering, then, is a
savings account for your cryptocurrencies. In fact, since they’re so alike,
Binance uses that same term on its
website.
Should
I use Binance’s P2P Lending Platform? Is it safe?
Binance’s P2P lending platform is as
safe as the exchange itself. If you’re already holding cryptocurrencies, you
have nothing to lose by putting it in Binance’s system, particularly if you’re
also a Binance customer, and earning a bit of interest on them.
While your cryptocurrency is extremely
safe there, there are naturally risks – namely, Binance losing liquidity.
However, you run the same risk whenever you open an actual savings account in
your bank. Binance has historically had high liquidity and its accounts are
both safe and insured, so it’s extremely unlikely you’ll lose your investment
unless the crypto market suddenly crashed and caused a bank run.
But then again, if the crypto market
suddenly crashes and causes a bank run on Binance, your tokens will be
worthless anyway.
The point is, Binance as a platform is
incredibly secure and even in the odd case where it has faced security issues
the holdings of all of its customers have kept their money.
Conclusion
As long as you
practice good account security, your holdings shouldn’t be at risk with them.
Sure, your crypto will be even safer in cold storage using a hardware wallet –
but those won’t give you interests on your holdings. Binance will.
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