Crypto Lending: Where the Interest Comes From and Which Risks You Carry

Interest on cryptocurrencies sounds like the best of both worlds: you keep your holdings and still earn a running return. That is how platforms advertise their lending products, at rates well above an instant-access savings account.

The claim is only half true. What you keep, as a rule, is not your coin but a claim to get it back. What that claim is worth depends on who sits on the other side and which law applies when things go wrong. In the European Union the answer to the second question is thinner than most people expect: the regulation that has ordered the European crypto market since 2024 expressly carves this very business out of its scope.

Crypto lending means handing over your balance and holding a claim afterwards

In crypto lending you leave your coins for a certain period with another market participant, who puts them to work and pays you a fee for it. In tax terms this is a temporary transfer of use; in everyday language almost every provider calls it interest.

The decisive step happens when you press the confirmation button: your coins move into the custody of a company or into a smart contract, and what remains in your account is a number representing a right to repayment. Anyone holding coins themselves carries the price risk and the risk of losing access; anyone lending them carries both of those and adds the counterparty’s default risk on top. The return is the payment for that third risk.

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