CoinLend is a ‘bot’ service which automates the process of lending cryptocurrency and US dollars to other users on exchange websites Poloniex and Bitfinex.

This kind of peer-to-peer lending is the best paying and safest method that I have found to earn interest on Bitcoin and other cryptocurrencies. Of course that doesn’t mean that it is without risk, but defaults are much, much rarer than other forms of peer-to-peer lending and the relatively high returns make it a great option for many.

I have been earning interest in this way since Poloniex first started offering the service and have never taken a loss from a defaulted loan.

Until recently I was using another service, called simply ‘Poloniex Lending Bot’ to automate my lending. So when that service announced that it was closing down I was very pleased to find out about a new site doing the same thing, and jumped at the chance to test it out and write an article about my experience.

How Peer-to-Peer Margin Lending Works And What The Risks Are

Margin traders borrow money from you in order to make trades with ‘leverage’, a common strategy in any financial market. In the cryptocurrency ecosystem, the funds required to provide these loans are often sourced from other users, who earn a daily interest rate in return for making their funds available.

To do this, users on Poloniex and Bitfinex just need to transfer money to their lending wallet (called the ‘funding wallet’ on Bitfinex) and then create an offer to lend. When creating an offer you specify the maximum length of time you are willing to lend for and the daily interest rate you wish to receive. Borrowers can then take up your offer if they choose, and the interest is automatically charged from their account and paid to you once per day. Having daily interest is nice, because it compounds quite a lot over the course of a year.

When a margin trader opens a trade using borrowed funds, the exchange monitors their position constantly. If they get close to losing their own initial deposit then the exchange will automatically close their trade for them before they lose any of the lender’s money. In theory this should mean that the lender will never lose money due to a default. In practice, a very rapid and violent market move could potentially take margin traders into heavy losses before the exchange can close out all of the open positions, leading to losses for lenders. There is also some risk of the exchange being hacked or going bankrupt and failing to process the withdrawal of funds.

Personally, I judge these risks to be relatively low and therefore acceptable given the high level of interest you can earn. But you should be aware that they exist and make your own determination of whether the returns are worth the risk.

How Using Automated ‘Bots’ Help Maximize Returns

These margin lending markets require some level of active participation from lenders: you must create offers and choose how much interest to charge. Because many loans only last a few hours (or even just a few minutes) and you may have dozens or more small loans at any one time, manually creating orders would require you to be constantly watching the lending market 24 hours per day. Without this, you end up with most of your money sitting idle in your account most of the time.

Both Poloniex and Bitfinex do have an ‘auto-renew’ feature to help with this. When auto-renew is switched on you just need to create an offer once, and then all of those funds will keep getting put into new offers with the same terms every time a borrower repays them back to your account. The problem with this is that the the rate borrowers are willing to pay is constantly changing. So you are forced to choose between offering your funds with a high interest rate and having them sit idle a lot of the time, or choose a lower rate and have them lent out all the time but with lower returns than you could be getting.

A lending bot is able to constantly watch both the market and your account, and create new offers for you at the optimal rate. They can even be quite clever about selecting how far from the current market rate to place your offer, by using historical data to judge how long it will take to get filled at different levels. In this way, lenders making use of one of these bots can earn significantly more than it is possible to earn without it.

CoinLend Review

I found CoinLend very quick and pretty easy to set up and use, and although I’ve only done two days of testing so far it seems very effective at choosing where to place offers.

At one point I noticed it had created an offer that sat a long way down the order book behind a 300BTC+ offer. I thought this would not get filled any time soon and if I had been managing the lending myself I would have canceled the order and set a new one with a lower interest rate. But within a few hours the offer was filled at the higher rate, which left me with a good impression of the bot’s ability to judge the placement of orders to optimize returns.

Like the previous service I used, using CoinLend does not add any additional risk as long as you follow the instructions properly when giving the bot permission to manage your exchange account. It cannot withdraw funds from your account, or do anything else other than create lending offers and read your lending history.

Unlike that other service, CoinLend has no fees whatsoever: they only ask that you make a voluntary donation if you are happy with the service and want to support its continued development and improvement. Which is nice.

You can use it to lend Bitcoin and / or US dollars on Bitfinex, or any of the following cryptocurrencies on Poloniex:

  • BTC
  • BTS
  • CLAM
  • DOGE
  • DASH
  • LTC
  • MAID
  • STR
  • XMR
  • XRP
  • ETH
  • FTC

The site also provides a dashboard where you can view information about all your currently open offers, your total lending balance, and how much interest you have earned over the past 30 days.

How To Use CoinLend

The CoinLend website provides full instructions on how to set up the bot for each exchange. Apart from some brief confusion when the instructions told me to transfer coins to my lending wallet on Bitfinex, and it took me a minute or two of vainly searching for this before I realized that Bitfinex calls it a ‘funding wallet’ not ‘lending wallet’, I found the instructions very clear and easy to follow. I strongly suggest you use the instructions provided by CoinLend themselves as the following is just a summary to give you an idea what to expect:

To start with you need to have accounts at Poloniex, Bitfinex or both. Although Poloniex has offered a higher interest rate on Bitcoin for quite a while now, spreading your funds between the two sites reduces risk and is therefore a good idea if you have more than a very small amount.

In order to lend you need to move your funds from your exchange account into your ‘lending’ account on Poloniex and your ‘funding’ wallet on Bitfinex.

To give the bot access to your accounts you need to create ‘API keys’ for the exchange(s) you want to use. When you do this you will be asked what permissions you want to allow for this API: make sure don’t give it extra permissions like initiating withdrawals from your account. The CoinLend instructions have a screenshot to show you exactly where to find the tool to do this on the navigation menus, as well as which boxes need to be ticked and which do not.

You then just need to paste the API key and secret which the exchange will provide you into the settings on CoinLend and click the ‘on’ button to start your bot.

All this talk of API keys and secrets and permissions may sound complicated to people who are unfamiliar with those terms, but its all fairly easy and painless really.

Get Started!

You can see the latest interest rates being paid on each of the available currencies and create your own bot account at https://coinlend.org/