Binance tests lending to margin traders

Cryptocurrency exchange Binance announced today that it is dipping its toe into the lending business. 

The world’s largest exchange announced on August 26 that customers can earn annualized interest rates of up to 15% by making short-term loans to its margin traders for leveraged investments. Initially limited to one period of 42 hours beginning on August 28, the firm will open up Binance Lending opportunities on a first-come, first served basis. The 14-day fixed interest loans of ethereum classic (ETC), tether (USDt), and binance coin (BNB) are also fairly limited. 

While there is some scope for “whales” in the tether loan subscriptions, the other two cryptocurrencies are capped at fairly low investments: About $7,250 per person for Ethereum classic and $13,000 for binance coin, at current rates. Tether owners, by contrast, can invest up to 1 million of the stablecoins, which sell for $1 each. However, a total of only 10 million USDt will be accepted.

Still, Binance does seem to be directing the initial loan offering at a wide audience. As few as one ETC (about $7.25), 10 BNB ($260), and 100 USDt ($100) can be purchased. The loan period is August 29 to September 10 in the UTC time zone (EDT +4:00).

The interest rates vary dramatically. Unsurprisingly, Binance’s own BNB had far and away the highest annualized rate of return at 15%. Tether comes in at 10% and Ethereum classic at 7%. Binance said that other cryptocurrencies and loan terms, likely including five days, will be added as time goes on. 

Thus with a maximum investment, Ethereum Classic loans will return about 2.7 ETC ($19.60) and binance coin loans will pay about 28.8 BNB ($749). A $1 million tether investment will yield roughly 383.6 USDt ($3,836). 

“Binance Lending is simple and intuitive to use,” said Changpeng “CZ” Zhao, CEO of Binance. “Users can subscribe to any lending product and earn interest, it’s as easy as that. The interest rate for each product is guaranteed, so your crypto balance will always grow, regardless of how the market moves.”

Those rates are guaranteed by the margin borrowers, Zhao clarified on Twitter. Binance “is just a matchmaker.”

It’s worth noting that while the interest rate may be “guaranteed,” the investment—like any other—is not. As the service agreement makes clear: “You agree that all investment operations conducted on Binance.com represent your true investment intentions and that unconditionally accept the potential risks and benefits of your investment decisions.”

Loaning money to margin traders hasn’t always worked out so well for exchange’s customers. Poloniex, for example, is still catching heat for the 1,800 Bitcoin that lenders lost in the aftermath of the CLAM cryptocurrency “flash crash” on May 26. 

Borrowers were unable to meet margin calls, and Poloniex spread the loss across the whole lending pool of investors. The exchange has so far returned about 10% of those losses as funds were recovered, and is offering investors trading fee discounts equal to their unrecouped losses.