Interest Rates in DeFi protocols

Hi I am new to the forum, I have invested in crypto (BTC, ETH, LINK, ADA) but what I am trying to figure out is how do the protocols like Compound, AAVE, Celsius Network, etc pay interest rates on various crypto? What is the use case where someone or an organization would need to borrow crypto? Why is DAI which is pegged to the $1 and can be purchased theoretically by anyone bea token that would need to be borrowed at an interest rate?


I’m in a similar place as you, I began investing early last year. After letting everything sit locked up in my Ledger for a long time I’m feeling much more comfortable with the idea of finding ways to start earning interest. Security is still a concern though, I’m hoping that in the near future it may be possible to enter into some kind of smart contract and invest while keeping my currency in my wallet, accruing interest while it remains there. I’ve been thinking very seriously about Blockfi or Celsius, but I still want to keep digging for any info on vulnerabilities/hacks before making the leap. Blockfi has sponsored some of the youtube channels that I like and trust but I still want to do more research. I really like the accolades that Rob from Digital Asset News has given to Celsius though.

None of this answers any of your questions, but hopefully my comments were useful in some manner. I’m currently taking the Defi 101 course (still pretty early in), which I definitely recommend if you haven’t taken it already.

Hi Harvey,

In terms of why would people need a loan through defi there’s actually another post about this from a few weeks/months back here : Defi loans it makes no sense

I’ve not actually dug into the why people would want to borrow crypto other than for arbitrage when they find a better interest rate elsewhere. This is where yield farming came from.

Thanks for the response, I have actually deposited a small amount of BTC into Celcius as a test. (so far so good) The thing I like about Celcius (and I know others offer it as well) is the ability to purchase the Crypto so I dont have to move it…if you dont mind let me know how your research goes.

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Thanks very much for the insight and the article.

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