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In this article, you will find:
a summary of the Yield and APY concepts
an explanation of lending and staking systems
What are Yield and APY?
The term Yield describes the interest you can earn with your crypto. The annual percentage of these earnings is usually expressed as APY (Annual Percentage Yield). For example, an APY of 2% corresponds to an estimated annual return of 2% of the amount lent or staked. This rate varies and is not guaranteed.
What is lending?
When you lend your crypto, you entrust it to our lending partner, which in turn lends it to borrowers. In exchange for the risk you take, you receive rewards in the crypto you lend. During the loan, your crypto belongs to this partner; it is returned to you at the end of the loan.
Who are the borrowers and what are the risks?
Our lending partner states that it only lends to institutions it has selected after assessing their risk and financial strength.
Borrowers are divided into four categories:
Tier 1: Large, top-tier liquidity providers (market makers) from traditional finance;
Tier 2: Crypto-native market makers;
Tiers 3 and 4: smaller institutional borrowers.
Our lending partner seeks to limit risk by diversifying the loan portfolio across several borrowers. The maximum exposure to each of them is based on their credit rating, ranging from 15% for Tier 1 borrowers to 5% for Tier 4 borrowers.
For stablecoin loans, our lending partner states that it requires borrowers to provide collateral of at least 100%. Only liquid and widely traded assets are accepted as collateral, including BTC, ETH, USD, USDC, XRP, ADA, AVAX and DOT. This collateral is given to our partner, not to you: it reduces its risk, but does not ensure that you will be repaid.
⚠️ What are the risks of lending?
The most significant risk of any lending operation is credit risk. Credit risk refers to the potential loss of assets due to the borrower's inability to repay the loan or to the occurrence of a specific problem. If our lending partner or its borrowers default, you may lose all or part of the crypto you lent.
When you lend your assets, you are not able to sell them or send them to an external wallet. Returning assets from the lending program can take up to several days. During this lock-up period, you cannot sell or send your assets to an external wallet.
Crypto lending is not a service governed by the MiCA regulation. No insurance or guarantee fund covers a loss related to lending.
When will I receive my lending rewards?
Lending rewards are distributed every day. They are usually distributed in the morning.
What is staking and what are the risks?
When you stake, you support the security of a blockchain that uses proof of stake (Proof Of Stake or POS) by validating transactions on the network. Transactions are validated by staking node operators. When you stake your crypto with Finary, you delegate your crypto to a staking node operator, while keeping full ownership of your crypto.
For each validated transaction, rewards are issued by the proof-of-stake protocol. The amount of crypto rewards you can earn depends on how intense the staking competition is across the whole blockchain, which is why the APY on staking programs is always only an estimate based on historical performance.
⚠️ What are the risks of staking?
In rare cases, your staked crypto may be lost due to network penalties (slashing) or other errors in the protocol.
While you stake your crypto, you are not able to sell it or send it to an external wallet. Unlocking your crypto can take up to several days, depending on network conditions. During this lock-up period, you cannot sell or send your crypto to an external wallet.
For a tutorial on how to lend/stake your crypto held on Finary, and more information on eligible crypto and fees, please see this article: How does yield work?
What happens to your crypto if Finary or a partner is hacked or goes bankrupt? See What happens to my crypto in case of a hack or bankruptcy?