1.2 k views

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. 

Bitcoin live price
Btc
Bitcoin
$27.092
price
2.54973%
price change
TRADE NOW

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

Stay up to date with our latest articles

More posts

Top 5 Crypto Audit & KYC Providers on Arbitrum

The days of unaudited projects, suspicious developers, and unverified investors running havoc in the crypto space are over. Today, the industry’s main actors agree that only complete transparency and security can help blockchain fulfill its latent potential. That’s why audit and KYC companies are central to building a safe and reliable Web3 environment for everyone. New projects can rely on crypto auditors to build better smart contract codes. Meanwhile, development teams can pass Know-Your-Customer (KYC) verification to ensure potential investors…

What Happens When a Stablecoin Loses Its Parity (Depegging)?

Have you heard of stablecoins, the digital currencies designed to maintain a stable value? Stablecoins have become increasingly popular, and many people consider them an attractive investment option. But what happens if a stablecoin loses its parity, and how does it impact investors?   Understanding the General Concept of Stablecoins Before discussing a stablecoin losing its parity, we first need to grasp how these tokens work. Stablecoins are cryptocurrencies tied to fiat currencies like the U.S. Dollar or Euro. This means…

How to Get Your Smart Contract Audited in 2023

To ensure the security of their smart contracts, companies are increasingly turning to third-party auditors. This is not surprising, considering smart contract auditing has become vital to blockchain development.  With smart contracts playing an ever-increasing role in the digital world, ensuring they are secure and reliable is essential. Today we’ll explain what to look for when choosing an auditor, how long the process takes, and what auditors examine. We will also outline the results of an audit and how to…

DeFi Scams – Most Common Scams in the DeFi Space

Defi scams are, unfortunately, all too common. This article looks at popular Defi scams, how they operate, and how to protect yourself. We'll also provide tips on what to do if somebody scammed you and how to report a scammer. Finally, we'll discuss the implications of DeFi scamming and present examples of successful prosecutions. What Are DeFi Scams, and How Do They Work? Decentralized Finance (DeFi) is a term that has gained enormous popularity over the years. DeFi is the…

Here are the Benefits of Auditing Your Smart Contract with SolidProof

Auditing a smart contract is vital to ensure that the code functions as intended. SolidProof offers a wide range of services to help with this process. In addition, the company guarantees a sound audit process and an experienced team of auditors.  Here are the benefits of auditing a smart contract with a reputable company such as SolidProof: A wide range of services: SolidProof offers a wide range of services to help with the audit process, including code review, security analysis,…

Smart Contracts Vulnerabilities Specific to The DeFi Space

As the financial world moves increasingly online, ensuring that all transactions run securely is becoming increasingly essential. One way this is possible is through the use of smart contracts.  Smart contracts are computer programs that automatically execute the terms of a contract. They provide a secure way to conduct transactions without relying on third-party intermediaries.  While smart contracts offer many advantages, they are also vulnerable to attack. In this blog, we will explore how attackers can exploit vulnerabilities in smart…

Real Yield: The Top DeFi Tokens for Generating Actual Revenue

This year’s brutal bear market has claimed a sizable batch of crypto startups and nascent coins. To weather the volatility, the long-term believers in decentralized finance (DeFi) are in search of one thing: “Real Yield.” The term has grown in popularity among those looking for hidden gems in the market for decentralized finance applications. But, more importantly, it marks an appetite for responsible crypto investment opportunities that can outlast a turbulent market cycle.  So what exactly is “real yield” in…

Get Top Notch Smart Contract Audit and KYC Services for your Crypto Project with Solidproof

Solidproof is one of the top auditors in the crypto industry, with an increasing offer of smart contract auditing, KYC, and marketing services. The German company has developed quickly since its inception in 2021, building a vast portfolio of prestigious and successful clients. The DeFi space is a nourishing environment for crypto and decentralized finance projects. However, it is also a breeding ground for scammers, multi-million hacks, fraud, and money laundering. Protocols running on faulty codes risk exposure to cybercriminal…

How Does KYC Work in the DeFi Space?

Decentralized finance (DeFi) has the potential to reach mainstream adoption and empower people worldwide financially. However, without regulations and identity control, it can easily become a platform for scams, fraud, and money laundering. The paradox is that by introducing stricter control on who can access DeFi products, the industry loses its "decentralization" factor. After all, this is what set it apart from traditional centralized finance (CeFi) in the first place. This is where KYC (Know Your Customer) standards come in…

The Importance of Smart Contract Auditing

Smart contracts are the innovation that propelled blockchain technology to where it is today. This invention fulfills the agreement between all the parties in a deal without the need for intermediaries. As a result, it boosts the security and immutability of a blockchain network, allowing numerous and diverse applications to develop. Unfortunately, smart contracts are not flawless and could lead to million-dollar losses if hackers can exploit their tinniest loopholes. For example, some famous attacks on smart contract code glitches…