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A Complete Guide to Crypto Lending DeFi Platforms
Traditional currency and banking systems feature several downsides as far as transacting is concerned. Cryptocurrencies present a decentralized alternative to deal with issues surrounding the two options. The introduction of DeFi was a step further in pushing the mass adoption of blockchain technology and digital currencies.
DeFi lending is on the same track, trying to bridge the void between traditional banking and all users globally without intermediaries. Now, lenders and investors can deposit, loan out, or borrow currencies in or for interest through distributed ledgers, dApps, and smart contracts. DeFi lending platforms bring this vision to light by acting as traditional banks while eliminating the third parties involved.
Advantages Of DeFi Lending
Transparent Lending
These platforms offer loans in peer-to-peer exchanges, thus no centralized authority. Smart contracts completely handle the transactions and their details. The above means access to the details is easy since they are saved in a public blockchain. Verifying the transaction details is easy for both parties, thus the transparent movement of any funds.
Faster Access To Loans
Traditional banks offer lending services that take days to weeks to complete. This aspect is because a borrower often needs to fill and sign many forms for a guarantee.
However, DeFi lending platforms are faster; therefore, any individual needing a crypto loan will need to have a crypto wallet and open a smart contract. Furthermore, access to the platform is made even easier since, with just a smartphone; anyone can access the loans.
Easy Access To Assets
In traditional banking systems getting access to assets like stocks and gold often takes time. In addition, many regulations must be fulfilled to hold a company’s stock.
Holding crypto, on the other hand, is very easy. Since the lending is peer-to-peer, the assets are transferred immediately after reaching an agreement.
Security of Loans
Lenders on these platforms have security for their value. Most DeFi lending platforms apply over-collateralization techniques to protect lenders from any losses. Due to the protocols, the borrower will return the amount plus interest on the loan. Those platforms have also devised ways to protect lenders and borrowers from the losses that may arise due to price plummets of assets.
Permanence
The immutability of blockchain-based transactions is another thing that increases the platforms’ efficiency. DeFI lending becomes even safer for lenders since they have evidence of lending transactions.
Crypto Lending DeFi platforms
The growing space of lending platforms has excellent potential to offer various pathways according to everyone’s preference. In that case, it is essential to acknowledge a few notable networks in the sector facilitating the same.
Compound
Compound protocol is arguably the most secure DeFi lending platform. Compound is an Ethereum network project allowing individuals to take and provide loans. In addition, the platform allows the locking of an individual’s assets in the compound protocols. The Compound platform supports bitcoin, Ether, DAI, and many other cryptocurrencies.
If one deposits tokens into the Compound platform, it releases an equivalent amount of cToken. The platform users can use cToken as loan collateral, and as such, they can spend the tokens and earn interest.
The basis of interest rates paid by borrowers to lenders is the crypto asset’s supply and demand. Therefore, the smart contract will raise the interest if more people borrow a particular asset. The increment in interest will, in turn, attract more lenders.
Aave
Aave is also based on the ethereum platform. It is a lending platform that offers a diverse range of services besides loans to the market. Aave allows users to lend and borrow USDT, LEND, BAT, DAI, ETH, MKR, LIMK, and many more. It has massive liquidity and offers the opportunity for protection against smart contract risks.
Aave has flash loans that are easy and fast to acquire, where individuals can participate without collateral. These loans rely more on the timing of the repayment rather than collateral guarantees. Aave platform also presents flexible interest rates. The platform has a rate-switching function that users can use to alternate between two types of rates, i.e., fixed and variable rates.
Maker
Maker protocol, also known as the Multi-Collateral Dai system, is a crypto lending platform that allows only the lending of DAI. Other coins supported are ETH, BAT, USDC, and WBTC.
Any Maker user can autonomously take a DAI loan using Ether as collateral. The Maker platform is permissionless; thus, it does not require the ‘know your customer‘ (KYC) protocols. After taking the DAI loan, a user’s token is locked. However, the tokens will be unlocked immediately if the user pays the loan plus interest.
Conclusion
Although traditional banking systems have been serving the lending space for a long, their systems’ flaws make them insecure for lenders and borrowers. On the other hand, DeFi lendings have many pros that make it easy for users to access loans.
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The only significant problem in DeFi lending is high interest, which is still puzzling crypto enthusiasts. However, since they give users the option of using different rate types, they still have an advantage over traditional lending. DeFi crypto lending might, shortly, be the replacement for traditional lending. Furthermore, DeFi lending could be part of the answer to the big puzzle of worldwide crypto adoption.
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