Intro to P2P Trading: How to easily get the Crypto you need for Lending

June 2nd, 2021
10 minutes read

I have been talking about crypto A LOT here recently. And with good reason. The cryptoeconomy is in my opinion one of the best places to lend your money. You can earn a good return and add diversification to your loan portfolio. One thing I haven’t discussed is HOW to get the crypto you need to lend it out. Most people get their crypto for lending in one of two ways:

  1. A cryptocurrency exchange like Binance or Coinbase
  2. Peer-to-Peer (P2P) Trading where you buy directly from another person

We are going to look at both of these convenient ways to get the crypto you need, then focus on P2P Trading, which has some unique advantages over getting set up with an exchange.


A cryptocurrency exchange is a place to exchange Euros, Dollars, Yen, or British Pounds for Bitcoin, Ethereum, and other cryptocurrencies. The world’s biggest exchange is Binance, which started in Hong Kong and now operates out of Malta. Western countries often use Binance, Coinbase, or Bitstamp as they are Europe’s and the US’s most popular exchanges. But there are other good ones too.

What exchanges do, especially for Western Europe or the US, is make it easy to buy by accepting:

  1. Bank transfers
  2. ACH
  3. SEPA or
  4. Wire transfers so you can buy the crypto of your choice.

Advantages & Disadvantages of Exchanges

Since most Westerners and most of you reading this have bank accounts, this makes for relatively easy buying, which is the big advantage. 

Here are some of the disadvantages of using an exchange:

  • Account setup is long, painful, and annoying at many exchanges. The identification technology many use for the Anti Money Laundering and Know Your Customer (AML/KYC) policies is often temperamental. You may have to submit many times to finally get approved.
  • Banks are generally hostile to crypto exchanges meaning they can make you go through many steps to actually send the money to the exchange or worse (see below).
  • You have no privacy as both the exchange and whatever governments regulate it can access your information.
  • Many banks in Europe and the US block transfers from banks to exchanges meaning that the reason you wanted to use an exchange in the first place is negated.

What About Apps?

Can you link apps like Paypal, Cash App, Venmo, Payoneer, or Transferwise to a cryptocurrency exchange? The answer is No, you can’t – but you can link the bank accounts that you link to these apps to exchanges. So the convenient idea of taking money from your Paypal balance and sending it to an exchange so you can buy Dogecoin is not in place yet at exchanges.

Paypal Crypto Account not possible to transfer outside of Paypal
Stu's PayPal account with crypto that can't be transferred outside PayPal

You can’t link your Paypal to an Exchange and You can’t buy crypto on Paypal if you want to lend it out because you can’t transfer it to another wallet

But you will be able to use some of these apps when p2p trading, which we discuss in the next section.

Cryptocurrency exchanges are one of the ways to buy the crypto you need for lending. But for most people around the world, the only way, not just the best way, is by trading crypto Peer-to-Peer.

P2P Trading

P2P Trading is when one person buys directly from another using a p2p trading platform. The most popular platforms are Paxful, LocalBitcoins, and Binance. In p2p trading, you either place an ad to buy, or you are answering the ad of someone who wants to sell so you can buy from them.

Binance is the only crypto exchange that also has a p2p trading service. It’s one of the ways they grew into the world’s largest exchange. Many countries cannot link bank accounts to exchanges the way England, Germany, Denmark or the US can. In fact, here in Colombia where I live, I don’t have the option of linking a bank account on Binance. I have to use p2p trading to buy my crypto for Colombian Pesos (COP) or use Binance to trade one crypto for another. Some countries like Georgia and Azerbaijan and all of Africa don’t allow banking to link to crypto exchanges either so they must use p2p trading services.

Why would someone buy through p2p trading if they could buy through an exchange? There are a few reasons including:

  1. More private transactions
  2. Faster transactions
  3. More payment options like your favorite payment app or money service
  4. Lower platform fees
  5. In some cases, better pricing

Let’s look at these in more detail.

More Private Transactions

When you buy on an exchange, the exchange is reporting on your activity as part of their compliance that the EU or US or other governing body requires. You can transact more privately with a p2p trade. Only the other person and the platform like Paxful knows you transacted.

And one of the biggest differences between Coinbase and Paxful is that Coinbase (and other exchanges) have a fiduciary responsibility to you as a customer. They have to deliver your coins to you when you buy. Paxful and other p2p trading platforms are mostly escrow services. They protect the trade by putting the coins being sold in escrow and they are available to moderate disputes, which happen from time to time between two people who are trading.

A p2p trading platform does not report your activity to the FCA or the tax authorities. You have to track and pay that yourself. But it also means that people don’t know how much crypto you have, which is good security so that’s the tradeoff.

Faster Transactions

Bank transfers in many countries are slow. SEPA is faster, but it requires both you as the buyer and the seller to be in the EU market so both parties can access it. For everyone else, payment apps or other money moving services can move your money faster than a basic SEPA credit or SWIFT.

With an exchange, you are relying on the existing legacy banking system to move money there to buy. With p2p trading, it only requires that both buyer and seller agree on how you will pay them.

More Payment Options

Related to faster transactions, there are more payment options with p2p trading. Paypal, Cash App, and Stripe for payments and card processing are available. Money transfer services like Western Union and Moneygram, too. More modern money services like Wise (Transferwise), Skrill, or WorldRemit are available too.

Now you won’t pay the same price with all these services as some are more risky forms of payment to accept than others.

Why? Because with some services you can reverse or charge back the purchase, and cryptocurrency transactions cannot be reversed. So a card transaction might be the most convenient for you, but you will pay a premium to buy your coins if you do so. As long as you understand these risks, then you can make a good decision. As a buyer, your risks are low because the coins are in escrow. When you show you’ve paid, you get the coins. However, sellers have different risks and different risks mean different prices

Like with many goods and services, you can pay more for speed and convenience or you can get a better price if speed is less important to you.

Lower Platform Fees

The average exchange price is between 1%-1.75% and this is pretty good. With p2p trading, you can often trade for less than 1% or even for free. It does not take huge amounts for those numbers to add up. At just $2000, instead of paying $35, you could pay zero or pay 0.5% which is only $10. Over a few purchases, that’s much more crypto you could be buying.

Better Pricing

Some markets are an anomaly for good reasons or no reason at all. There are a few countries where Bitcoin buys and sells at a discount to its USD exchange price on Coinbase or Binance. As we said above, you can pay more than the market price for the convenience of paying how you want. And you might be able to pay how you want through a bank transfer within your country and get a price better than the market. You have to look at the price offerings on the p2p trading site and see.

How Does a P2P Trade Actually Work?

To go through how a P2P trade really works, we are going to look at Paxful. First you sign up and do the verifications necessary, which are less than what a typical exchange requires.

Here’s what will happen:

  1. We will search for ads for the payment option we want
  2. We will select that option
  3. Paxful will lock the coins we want to buy in escrow so the seller can’t sell to someone else while we are paying for them
  4. We will talk in the chat box with the seller
  5. We will pay and upload our proof of payment
  6. The seller will release the coins to us

Now, as a holder of Euros, we are going to look for a deal to BUY Tether (USDT) with our Euros. Tether is a good cryptocurrency to lend to others so we will start there. In the EUR market, bank transfers and SEPA are probably going to be the cheapest methods while being relatively fast so we will start with those. 

Let’s see what deals are available. Here’s our search criteria:

Paxful options to buying Tether (USDT) with all payment methods available

We are buying USDT from anywhere worldwide and any payment method that we can use to pay in Euros. The current exchange rate between the USD (the basis for USDT) and the Euro is 0.82 Euros per USD. So if we pay 0.85 then we are paying more than $1 for $1 of USDT.

Since offers are listed more or less from cheapest to most expensive, it looks like our best offer is 0.85, which is a 3-4% premium to the market price. Here’s the offer:

Offer on buying Tether USDT at Paxful with SEPA

While this is just a glimpse of what you get in this offer, it’s full of good information, and we have not even clicked on the ad yet. Here’s what we know so far. This trader has 1079 positive feedback, so they trade A LOT. The payment method is SEPA, which we like. They require a photo ID to trade to prove that you are you (which some require and others don’t). They let you buy 500-2444 EUR from them, and the price is 0.85 EUR. Then we click on the Buy. This is the full ad:

Paxful merchant selling Tether USDT for SEPA transfer

Now we have some more detail. For 600 EUR, I get 578.82 EUR worth of USDT. The seller has no negative feedback, which is good. The Paxful platform fee is 0, so I save money there. I have 30 minutes to make this deal once I click on BUY NOW. You can see that the terms require KYC stuff before they give me their bank details. You may be ok with this, or you may think this is too intrusive, so you decide to skip this and go to another offer.

After clicking on Buy Now, you will get to see a chat box where you can talk, exchange information and make the purchase. Once you click on Buy Now, the 705.88 USDT I will be buying is locked into escrow, meaning he has to deal with me until I pay him or I cancel the trade.

Then I pay, upload a copy of my receipt from my bank showing I made the SEPA transfer to the account they requested. This is an important step as it is required for payment, and it is required that Paxful sees your receipt in case there is a dispute like a claim you have not paid, which can happen but rarely does.

Once I Receive the Coins, Now What?

We’ve followed the path, paid with SEPA and the coins were released to us. Now what? Whether it is Paxful, LocalBitcoins, or Binance p2p trading, you receive the coins in a wallet on their platform. This means that Paxful has created a wallet for you.

But you can’t lend your crypto from your Paxful wallet. Whether you use a DeFi platform OR a CeFi platform like BlockFi, you need to move the crypto from Paxful to your own wallet. From there you can link your wallet to a DeFi platform or follow the lending platform instructions on getting your crypto to them so you can earn interest.

With all these little details, it’s easy to think using p2p trading to get the crypto you need is difficult. But it really isn’t. You may have to learn a new platform like Binance or Paxful but all these platforms specialize in making things simple and user-friendly. They cannot grow to the enormous sizes that they are if they are hard to use or have lots of dissatisfied customers.

All you need is the desire to add crypto to your portfolio, an understanding of how different payment methods mean speed, convenience, or a better price, and get started.