Recently, I took a fresh look at cryptocurrency lending, and it’s quite complex. Compared to bank interest rates of around 0.1%, annual yields of 3% to 10% are definitely attractive, but surprisingly few people understand the structural risks behind these returns.

Crypto lending essentially involves lending your coins to exchanges or lending service providers and earning interest in return. It’s often confused with staking, but that’s an important point. Staking involves participating as a validator in PoS-based blockchains to earn network rewards. In contrast, lending is based on a loan agreement, meaning the ownership of the coins temporarily transfers to the lender. If the service provider goes bankrupt, there’s a risk that you become a general creditor.

In December 2025, the Financial Services Agency indicated plans to regulate lending under the Financial Instruments and Exchange Act, mainly due to this risk structure. Under the current system, segregation of customer assets isn’t mandated, so users bear direct risk. Looking at major lending companies like BlockFi and Celsius, their failures highlight this concern as very real.

For domestic exchange-based lending, main options include GMO Coin, bitbank, Coincheck, and SBI VC Trade. These are registered with the FSA for cryptocurrency exchange operations, so they are under certain supervision. The interest rates are relatively low, around 1% to 5% annually, but if stability is your priority, these are safer choices. On the other hand, dedicated lending firms like BitLending offer higher rates of 8% to 10% annually. However, you need to accept the risk that they are not directly regulated by the FSA.

The advantage of lending is that it pairs well with a long-term holding strategy. You can keep holding Bitcoin or Ethereum while earning interest, effectively increasing your coin holdings over time. Compound interest effects are also possible. It’s beginner-friendly because you can start with small amounts.

But there are significant downsides. During the lending period, you generally can’t sell or transfer your assets, so you can’t respond to sudden market changes. Early withdrawal may incur fees or result in zero interest. Additionally, since you earn interest in the form of the same crypto asset, a significant price drop during the lending period could lead to losses that interest alone can’t cover.

Tax considerations are also important. Interest earned from lending is generally classified as miscellaneous income and combined with salary income for comprehensive taxation. However, discussions are ongoing about shifting to a 20% separate taxation system, so future regulatory changes should be closely watched.

To start lending, first open an account at a domestic exchange, purchase the coins you want to lend, select the lending period and assets, and apply. After maturity, your principal and interest are returned. Using automatic re-lending features allows for continuous income generation.

Ultimately, lending should be done with surplus funds, after thoroughly checking the credibility of the service provider. As regulations tighten, domestic registered exchanges’ lending services will become increasingly important. Checking related information on Gate.io can also help you better understand market movements.