Lending out your ETH can be a great way to earn interest on your tokens that may otherwise be sitting idle. You can lend out through either CeFi or DeFi platforms. 

Key Takeaways 

• ETH lending yields passive rewards on the funds you loan out. These rewards are normally paid out “in-kind” — meaning in the same token you lent out.
• Reward percentages vary depending on the market conditions and the method you use for lending. Typically lending rates for Ethereum are in the 1% – 6% range.
• Remember that your loaned tokens are no longer in your custody while they’re lent out through CeFi. If the platform is hacked or goes bankrupt, your funds may be at risk.

What is Ethereum (ETH) Lending?

Anyone that holds ETH can put their funds to work by loaning them out to borrowers looking to take out ETH loans. These borrowers pay interest on their loans and that interest gets turned into yield for the lenders who supplied the ETH. 

How Does Ethereum Lending Work?

While traditional fiat currencies are minted by a central bank and are then loaned out to people and businesses through banks, cryptocurrencies are loaned out in a peer-to-peer process. Since there is a finite amount of ETH and no central authority that determines how that ETH is distributed, individuals come together to create lending and borrowing services.

Lending your ETH to borrowers is a great way to earn passive rewards on your funds. Your loaned ETH is borrowed by people and institutions on the other side who then pay interest. This interest is where your rewards come from — in the form of annual percentage yield (APY). 

You can lend ETH either through centralized finance (CeFi) lending or through decentralized finance (DeFi) lending.

	APYs	Transparency	Lending Collateral Factor
CeFi Lending	Higher due to special platform programs	Lower — once your funds are in these platforms, you don’t know where they go	Unknown — Platforms can lever up and lend out more than they have in reserves. This undercollateralization can leave a platform prone to insolvency during a market crash.
DeFi Lending	Lower due to direct lending and large liquidity	Full — you can track all of your ETH loaned funds directly on the blockchain when working with DeFi	Overcollateralized — DeFi protocols require borrowers to deposit more than they borrow. DeFi companies also don’t take customer money to go earn yield elsewhere.

CeFi Lending ETH

CeFi lending happens through “centralized” exchanges such as Nexo. These are companies that function much like traditional banks do. They offer rewards programs for lending them your ETH that often have attractive APYs. However, they store your crypto in their institutional wallets and you don’t really know what happens with your ETH once it’s in their custody. 

The ease of use of CeFi platforms is much better than on DeFi platforms, however, and most major exchanges have good reputations and keep insurance funds on hand to protect against unexpected losses. 

Lending through CeFi is a good option for those looking to maximize yield or for those who are new to the crypto ecosystem and want a straightforward lending experience.

DeFi Lending ETH

The smart contract nature of the Ethereum blockchain has enabled the blossoming of the DeFi ecosystem. DeFi protocols such as Compound and Aave are automatic programs which execute smart contracts to allow lending, borrowing, staking, and much more. These platforms do not require identity verification and can be used completely anonymously (given that your wallet ID does not trace back to your personal identity). 

The best part about DeFi is the full transparency of the protocols. All interactions with DeFi platforms are recorded on the blockchain as transactions between wallet addresses. The DeFi protocols are not companies in the traditional sense. Rather, they are controlled by the holders of their governance tokens who publicly make decisions about the future of the protocols. Most DeFi protocols are even open-source so you can audit the code yourself to understand how they work.

DeFi provides more flexibility and transparency compared to CeFi, however yields are also generally lower. This is because centralized platforms run rewards programs that juice the APYs for activities such as lending and staking. The downside of these is increased opacity and risk — sometimes these companies spread themselves out too thin and go bankrupt. DeFi has no such programs and all lending is overcollateralized meaning that you cannot lose your funds in a protocol bankruptcy.

Best CeFi Platforms For Lending ETH

	Supported Tokens	APYs	Lockup Window	US Support	Rewards Terms	Rewards Withdrawal Terms	APY comes from	About the platform
Cake DeFi	ETH, BTC, USDC, USDT	4% *Cake DeFi “Earn” provides yields up to 10% but is riskier	Four weeks	Yes	Yield is paid in the loaned token (in-kind)	Yield is available for withdrawal at the end of each four-week lockup period	Providing loans that are secured by institutions Sparrow and Signum Capital	Based in Singapore and founded in 2019
Nexo	ETH, BTC, SOL+ more	4% – 8%	Options are: No lockup, one-month lockup, or three-month lockup	No	Yield can either be paid in-kind or in NEXO tokens	Yield is paid out  and can be withdrawn daily	Providing overcollateralized loans	Based in Switzerland and founded in 2018

Cake DeFi

	Supported Tokens	APYs	Lockup Window	US Support	Rewards Terms	Rewards Withdrawal Terms	APY comes from	About the platform
Cake DeFi	ETH, BTC, USDC, USDT	4% *Cake DeFi “Earn” provides yields up to 10% but is riskier	Four weeks	Yes	Yield is paid in the loaned token (in-kind)	Yield is available for withdrawal at the end of each 4 week lockup period	Providing loans that are secured by the institutions Sparrow and Signum Capital	Based in Singapore and founded in 2019

*Cake DeFi has currently decreased their batch length to 7 days from 4 weeks and has also made their APY 4% only for ETH contributions less than 0.1 ETH

Cake DeFi is a well-respected lending platform that offers high yields on ETH lending and even higher yields through its “Earn” program which combines lending and liquidity mining to boost returns. Cake DeFi is one of the few CeFi lending companies that accepts US customers. If you’re from the US, however, you will have to complete a know-your-customer (KYC) identity verification process before you can lend on Cake DeFi.

Lending on Cake DeFi

Cake DeFi uses a “batch” system to accept loan funds. Each batch accepts ETH for a period of time and closes once it fills up. The ETH funds are then loaned out over the course of four weeks during which time your ETH is locked up and cannot be withdrawn or used for any other purpose. At the end of the four-week period, your loaned ETH plus the interest you earned on your funds become available in your account for withdrawal. New batches are available every week and your ETH must be loaned as part of a batch in order to accrue interest.

Cake DeFi guarantees the lending APY for each batch. When lending ETH, you can bet on earning at least 4% APY during the four-week batch period. In addition to the guaranteed APY, however, Cake DeFi also provides a boosted APY reward depending on how well ETH does. If it goes up in price enough during the four-week batch period, you will receive additional APY rewards.

The platform also provides an “earn” product which combines liquidity mining with lending to boost APYs to 10%. Liquidity mining is a more risky strategy than lending, however, so this boost in rewards comes with a greater potential downside. Find out more about the Cake DeFi earn program here.

Pros	Cons
-Receive a guaranteed base APY for your loaned ETH -A great choice for US traders Cake -DeFi “Earn” offers 10% yields	-APY can be relatively low compared to other CeFi platforms -Your loaned ETH is subject to a fixed four-week lockup -Interest accrues only during the batch period and funds must be re-lent at the end to keep earning

Lend ETH with Cake DeFi

How to Lend ETH via Cake DeFi

Step 1: Go to the Cake DeFi website and log in or make an account to get started.

Step 2: Once you’re logged in, click on “All Products” and then “Lending” to access the lending dashboard. Here you will see the available APY figures for ETH lending as well as the batch start and end dates.

Step 3: Familiarize yourself with Cake DeFi’s batch lending process by clicking the “Details” button in the “ETH Lending” box. It’s important to make sure you understand batch lending before you proceed. 

Step 4: Once you’re ready to lend, use the “Enter” button in the “ETH Lending” box to enter how much ETH you want to lend. Once this step is completed, your ETH will be queued up for the start of the next batch.

Nexo

	Supported Tokens	APYs	Lockup Window	US Support	Rewards Terms	Rewards Withdrawal Terms	APY comes from	About the platform
Nexo	ETHBTCSOL+ more	4% – 8%	Options are: No lockup, one-month lockup, or three-month lockup	No	Yield can either be paid in-kind or in NEXO tokens	Yield is paid out and can be withdrawn daily	Providing overcollateralized loans	Based in Switzerland and founded in 2018

Nexo is a full-fledged crypto platform that features an exchange, a wallet, borrowing and lending functionality, and the NEXO platform token. The NEXO token plays a major role in the Nexo ecosystem and unlocks ETH lending APYs of up to 8%.

NEXO Token

Like many other CeFi platforms, Nexo mints its own platform cryptocurrency called NEXO. NEXO tokens can be traded on the open market for their fair market value, while holding them unlocks a host of benefits on the NEXO platform. 

Nexo uses a loyalty tier program to determine your rewards — which include higher APYs on lending, lower interest on borrowing, platform fee discounts, and more. There are four loyalty tiers which are determined by how much of your portfolio on the Nexo platform consists of NEXO platform tokens. 

As shown in the table below, your ETH yields depend on a number of factors including your NEXO loyalty tier, whether your ETH funds are liquid or locked up for a period of time, and whether you take your yield rewards in NEXO or in-kind (in ETH). In the table below, the base APY figures for each tier are displayed in the second column and the additional APY you can earn is displayed with a + in the next two columns. The last column shows the max APY you can earn for each tier (if you lock up your ETH for one month and also take your ETH rewards in NEXO token).

	Percent of your portfolio in NEXO	Base APY for ETH lending	ETH APY for lending with one-month lockup	ETH APY when taking rewards in NEXO (rather than ETH)	Max ETH APY for tier
Base Loyalty Tier	Less than 1%	4%	+1%	+0%	5%
Silver Loyalty Tier	1% – 5%	4.25%	+1%	+0.25%	5.5%
Gold Loyalty Tier	5% – 10%	4.5%	+1%	+1%	6.5%
Platinum Loyalty Tier	10%+	5%	+1%	+2%	8%

Remember: NEXO tokens are a volatile crypto asset, just like any other cryptocurrency. Since these tokens are minted by the Nexo platform, their value is also tied to the value of the platform. If Nexo were to encounter significant issues or end up insolvent, the NEXO token would most likely lose all of its value. It’s important to understand that whenever you hold NEXO tokens — whether for your loyalty tier, or because you’re taking interest yield in NEXO rather than in ETH — you are exposing yourself to the price volatility of the NEXO token.

Pros	Cons
-ETH APYs of up to 8% -Interest is distributed daily and can be withdrawn whenever -The NEXO token gives benefits across a range of Nexo products	-You must hold a lot of NEXO and take your APY returns in NEXO to get the best APY -Nexo is not available to US customers -Understanding the platform and the token can be complicated for new traders

Lend ETH with Nexo.

How to Lend ETH via Nexo

Step 1: Navigate to https://nexo.io/ and log in (or create an account if you don’t have one).

Step 2: Once you’re logged in, navigate to the “Assets” section of your dashboard and select ETH.

Step 3: In the pop-up menu, select “Top Up”. Designate the amount of ETH you would like to loan out and complete the steps. Your ETH is now lent out through NEXO and you will begin earning interest immediately.

Best DeFi Platforms for Lending ETH

	Supported assets	ETH APYs	Flash Loans?	ETH Collateral Factor	Types of Interest Rates	Platform Fees
Compound	ETHw, BTC, UNI, LINK+ more	Around 0.10% but depends on market conditions	No	83%	Variable	None, just ETH gas fees
Aave	ETHw, BTC, MKR, USDC+ more	Around 1.26% but depends on market conditions	Yes	82.5%	Variable	None, just ETH gas fees
Alchemix	ETH, USDC, USDT, DAI	1% – 6.69%	No	50%	Variable	None, just ETH gas fees
Notional	ETHw, BTC, USDC, DAI	5.40%	No	69%	Variable & Fixed	Small transaction fee + ETH gas fees

Compound

	Supported assets	ETH APYs	Flash Loans?	ETH Collateral Factor	Types of Interest Rates	Platform Fees
Compound	ETHw, BTC, UNI, LINK+ more	Around 0.10% but depends on market conditions	No	83%	Variable	None, just ETH gas fees

Compound is one of the most popular DeFi platforms that features borrowing, lending, and more. The protocol’s popularity ensures its markets have deep liquidity on all sides. 

The protocol uses a set of smart contracts to facilitate trades between borrowers and lenders. The code is open source and the protocol is governed by a community of holders of the COMP governance token. As with most other DeFi lending protocols, the APY of your loaned ETH is constantly changing so check the Compound website for the latest ETH APY lending figures.

Pros	Cons
-Transparent and straightforward protocol -Lots of liquidity -No platform fees	-Low APYs due to oversaturation of ETH funds -Complicated to get started -Not as many supported assets as other DeFi platforms

Lend ETH with Compound.

How to Lend ETH via Compound

Step 1: Navigate to the dashboard interface of the Compound V2 app.

Step 2: Use the on-screen instructions to connect your crypto wallet.

Step 3: Once your wallet is connected, click on “Ether” under “Supply Markets”.

Step 4: In the pop-up window, enter the amount of ETH you would like to lend out and click “Supply”.

Aave

	Supported assets	ETH APYs	Flash Loans?	ETH Collateral Factor	Types of Interest Rates	Platform Fees
Aave	ETHw, BTC, MKR, USDC+ more	Around 1.26% but depends on market conditions	Yes	82.5%	Variable	None, just ETH gas fees

Alongside Compound, Aave is one of the most well-known DeFi protocols for borrowing and lending. The platform has a wide array of supported assets and even works on multiple chains including Ethereum-based chains (L2’s) and blockchains that have smart contracts but are not related to Ethereum (L1’s).

Aave is known for its flash loans technology where users can borrow money for a crypto loan without posting collateral as long as they immediately pay it back within the same blockchain block.

Pros	Cons
-Lots of supported assets and supported blockchains -Offer flash loans for advanced borrowers -Higher ETH APYs than Compound	-As a DeFi protocol, Aave can be difficult to work with for beginners -Wildly varying APYs depending on current market conditions

Lend ETH with Aave.

How to Lend ETH via Aave

Step 1: To get started, navigate to the Aave dashboard and click “Connect Wallet”.

Step 2: Use the pop-up interface to connect your ETH wallet.

Step 3: Click on “Supply” next to the ETH asset.

Step 4: Use the pop-up dialogue box to enter the amount of ETH you’re looking to supply. When you’re ready, click “Supply ETH” to loan out your ETH.

Alchemix

	Supported assets	ETH APYs	Flash Loans?	ETH Collateral Factor	Types of Interest Rates	Platform Fees
Alchemix	ETH, USDC, USDT, DAI	1% – 6.69%	No	50%	Variable	None, just ETH gas fees

Alchemix is another DeFi lending and borrowing protocol that allows you to earn yield on your ETH funds. 

The twist that Alchemix introduces is that it automatically pays down the loans that borrowers take out. This is done by taking the collateral that borrowers deposit and lending it out throughout the DeFi ecosystem for yield. This yield (which can be upwards of 10% if the collateral is put to use intelligently) is then used to pay down the principal of the loan. 

According to the platform, this means that Alchemix should never have forced liquidations (in theory) and the platform can pay off client loans automatically over time.

Pros	Cons
-Innovative approach to lending that is poised to grow -Significantly higher yield on loaned ETH — with 6%+ APYs available -Choose from a selection of different lending strategies with high APYs	-Platform has only been operational since 2021 so it’s still quite new -While ambitious, the platform relies on returns from third parties which could be dangerous during large market moves -Not as big of a lending platform as others

Lend ETH with Alchemix.

How to Lend ETH via Alchemix

Step 1: Navigate to the Alchemix vaults page and click “Connect Wallet”.

Step 2: Use the pop-up instructions to connect your ETH wallet.

Step 3: Once your wallet is connected, scroll down on the vault page to find the Yearn yvWETH vault. For this step, you may also look through the other vaults and see which is offering the highest APY.

Step 4: Make sure to click the “WETH to ETH” switch so that your token deposit is taken in ETH rather than WETH. Enter the amount of ETH you would like to deposit and click the “Deposit” button to loan it out on Alchemix.

Notional

	Supported assets	ETH APYs	Flash Loans?	ETH Collateral Factor	Types of Interest Rates	Platform Fees
Notional	ETHw, BTC, USDC, DAI	5.40%	No	69%	VariableFixed	Small transaction fee + ETH gas fees

Notional is one of the only DeFi lending protocols that offers fixed as well as variable lending APYs. 

Normally, ETH APYs in DeFi vary constantly due to market conditions so the ETH yield you are getting is changing even after your ETH is loaned out. Notional, however, uses an innovative lending method through its fCash tokens which allows you to redeem a fixed lending APY for the length of any loan originated with your ETH funds. 

Pros	Cons
-Get a fixed 5.40% APY on loaned ETH funds -One of the only DeFi protocols to provide fixed-loan APYs -Support for ETH, wBTC, and two major stablecoins	-There are fixed maturity dates you have to select from, so your loaned ETH is locked up in rigid timeframes -The more ETH you lend out, the lower your APY -Only a few maturity dates to select from

Lend ETH on Notional.

How to Lend ETH via Notional

Step 1: Navigate to the Notional Finance and click “Connect A Wallet”.

Step 2: Use the on-screen instructions to connect your wallet to the platform.

Step 3: Use the interface to enter the amount of ETH you would like to loan out and the maturity date you would like to use (the longer the loan term, the better your APY). Once you’ve entered your amount, click “Confirm & Submit Trade”.

What Lending Terms Are Available? 

Since your loaned ETH is used to originate loans, your funds will usually be subject to a lockup period during the duration of the loan. This loan duration is referred to as the loan “term”, and term lengths vary by platform. Many platforms even offer multiple loan terms to choose from. 

Platforms that lock up your ETH during the loan term generally provide higher APYs. This is congruent with traditional lending practices where the longer your money is locked up, the better interest yield you receive. Most CeFi platforms use some form of a loan term, while the majority of DeFi platforms do not have fixed loan terms and your APY is constantly in flux.

Risks of Lending ETH

As with any yield-bearing activity, ETH lending comes with some associated risks. It’s important to understand these risks in order to ensure you get the most out of lending your ETH. Here is a non-exhaustive list of lending risks:

Platform Insolvency: The volatility of the crypto world has, on several occasions, led to platform insolvencies where clients have watched their funds evaporate. These blow-ups are most common in CeFi and are a hidden danger lurking behind the allure of high platform-enhanced APYs. It’s important to always remember that when you are letting a third party custody your crypto assets, they could potentially disappear forever if that company falls on hard times.

Security Breaches: Hacking and security breaches are a danger that plague CeFi and DeFi platforms alike. Platform exploits can lead to hackers getting ahold of customer funds, which leaves the platforms scrambling to recover deposited client funds — which they can’t always do.

Fraud & Phishing: While hackers and insolvencies are relatively rare, fraud and phishing scams cost crypto holders hundreds of thousands of dollars every day. It’s especially important in the crypto industry to always double check the website URL when you’re using a protocol or lending platform and to never, under any circumstances, give away your wallet seed phrase.

Prolonged Market Exposure: Any time your crypto assets are locked up, you are unable to react to market events. If the price of ETH dumps all of a sudden and you want to sell some of your loan funds to cover losses, you will not be able to do so if the funds are locked up. Instead, you’ll be forced to watch your holdings tank in value, unable to do anything. Always keep in mind when picking your lending terms that locked-up funds can’t be moved or sold.

How to Pick a Lending Platform

With more platforms offering crypto lending rewards than ever before, the competition for your ETH is fierce. Here are some of the main points to consider when picking between different platforms:

APYs: This will be the most important consideration for many people — how much you can earn from lending your ETH. APYs are affected by a multitude of factors including the individual lending platform’s rates, the loan term that you use, and how you earn your yield (in-kind or through platform tokens). The best APYs will come from ETH lent out for a long, fixed period of time and whose rewards you collect in the native platform token. This, of course, introduces you to pricing risk that you may not wish to take, so it’s important to think of maximizing APY as a constant balancing act of risk and reward.

Platform Reliability: While it’s rare that platforms have solvency problems or security issues, it’s certainly been known to happen. Pick large platforms that have established reputations and — now more than ever before — are as transparent about their operations as possible. If something seems too good to be true, or if a platform does not have a lot of users, it’s sometimes best to walk away — even if it means passing up on high APYs.

Ease of Use: DeFi in general is harder to get the hang of than CeFi and, when you’re working with lots of money, it’s important to find a platform that will make lending your funds easy and painless.

How to Sign up for a Lending Platform (Cake DeFi)

Step 1: Go to the Cake DeFi website and log in or make an account to get started.

Step 2: Once you’re logged in, click on “All Products” and then “Lending” to access the lending dashboard. Here you will see the available APY figures for ETH lending as well as the batch start and end dates.

Step 3: Familiarize yourself with Cake DeFi’s batch lending process by clicking the “Details” button in the “ETH Lending” box. It’s important to make sure you understand batch lending before you proceed. 

Step 4: Once you’re ready to lend, use the “Enter” button in the “ETH Lending” box to enter how much ETH you want to lend. Once this step is completed, your ETH will be queued up for the start of the next batch.

How to Transfer Your ETH to a Lending Platform (Cake DeFi)

Step 1: Navigate to the Cake DeFi website and log in if you have an account or create one if you don’t.

Step 2: In the “Balances” section of your dashboard, find Ether and click the “Deposit” option.

Step 3: You will have the option to either scan a QR code from your mobile phone or to copy and paste the ETH address in order to transfer your funds.

Step 4: Designate how much ETH to transfer and follow the on-screen instructions to complete the lending process.

ETH Lending Taxes

Lending income in the form of APY rewards is taxable as normal income according to the IRS. This means that you are liable for taxes on the amount of ETH rewards that you receive in the same way that you would be liable for any other income. 

While lending rewards are taxable as income, ETH sales can also incur capital gains tax that you are liable for on top of the income tax. Any time you sell ETH for more than you acquired it for, you are liable for a capital gains tax on the difference (the appreciation). When you receive staking income, you will be liable for income tax on the value of the rewards at the time of receipt, and as the ETH rewards appreciate, you will also become liable for capital gains tax once you sell them.

To Sum it Up

ETH lending is a safe and easy way to earn some passive income on your idle ETH funds. You can loan your ETH either through a centralized exchange — that streamlines the process and provides high APYs but may make risky bets with your funds — or through DeFi — where your funds are transparently lent out but APYs are lower and vary constantly. 

Frequently Asked Questions

What are the Ethereum lending rates?

ETH lending can yield anywhere between 0.50% APY to upwards of 8% APY.

For centralized platforms, lending figures are normally between 2% and 8% APY, while DeFi lending protocols can range from just above 0% to around 6% APY.

Can I use Ethereum as collateral?

Yes.

You can use your ETH funds as collateral for borrowing fiat, stablecoins, or other crypto.  

Can you leverage ETH?

Yes.

Most exchanges allow you to leverage ETH when trading by either taking on margin explicitly or by making trades beyond what your account funds can cover — thereby automatically incurring margin.

How do taxes work with ETH lending?

ETH lending rewards (APY) are taxed as income — just the same as if you had earned money in any other way. 

The value of ETH lending rewards at the time you receive them also forms the cost basis for future capital gains tax liabilities. If your ETH holdings have appreciated in value, you will be liable for capital gains tax when you go to sell them.

Where can I lend my Ethereum?

You can lend out your ETH through centralized platforms like Cake DeFi and Nexo, or through decentralized protocols such as Compound, Aave, Alchemix, and Notional.

Should I lend my ETH?

ETH lending is generally a low-risk earning strategy. 

That being said, risks such as platform insolvency, hacks, and opportunity cost during periods of lockup exist which should all be weighed with your personal risk tolerance.