DeFi lending and borrowing is still a relatively new phenomenon in the financial sector. And yet, it already beats CeFi solutions in many aspects.
The total value locked in DeFi has immensely grown during the last bullrun. With its current evaluation hovering around an astonishing sum of 60 billion USD, the overall interest in this technology will surely grow in time.
In this article, we are going to take a closer look at how DeFi lending and borrowing works, what benefits and dangers it bears, and what Liquid Loans does in order to alleviate these risks
Decentralized finance (DeFi) combines a whole ecosystem of blockchain-based financial applications under its hood.
With the help of smart contracts and other innovative tools and features, it enables users to connect with each other on a peer-to-peer basis and manage their own assets in a self-custodial manner without having to rely on any third party.
DeFi lending and borrowing, in turn, is a set of services offering crypto loans in a trust-less form.
With the help of appropriate protocols and platforms, borrowers can take loans with a few clicks of a mouse as they don’t have to submit any documents or even provide an ideal credit score.
At the same time, cryptocurrency holders can safely lend their assets and earn passive income on their investments.
In contrast to DeFi, Centralized Finance (CeFi) always implies a custodian to hold and manage users’ assets. Thus, centralized exchanges (CEXes) as the most popular example of such services route all transactions through the servers controlled only by these platforms.
In many aspects, CeFi services act very similarly to traditional banks and other centralized financial institutions.
They trade their reputation in exchange for the users’ trust and assets. At the same time, they take all the pains of providing funds’ security and managing users’ assets.
Yet, despite all these conveniences, the popularity of DeFi lending and borrowing keeps growing. Why does it happen?
CeFi services failing their customers is not a novelty in the crypto world. FTX crash and other centralized crypto services failures that took place in 2022 are still fresh in the memory of cryptocurrency users. Thus, storing your funds on centralized platforms as well as using their lending services becomes questionable.
DeFi lending and borrowing services, on the contrary, are capable of solving many of the issues inherent to centralized solutions. Here are some of the key benefits that this approach provides:
The advantages of the new approach are indisputable. Yet, there are also some negative aspects that one should consider as well.
When developing its DeFi lending and borrowing protocol, Liquid Loans keeps these problems in mind. With its help, users can benefit from interest-free loans which are more capital-efficient than other systems as they require less collateral to back the loan.
Here are some of the key technological aspects that it relies on:
Besides, Liquid Loans builds its product on a fully trustless, immutable, and permissionless blockchain which helps to maintain the network secure and protect it against any external influence.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Kate is a blockchain specialist, enthusiast, and adopter, who loves writing about complex technologies and explaining them in simple words. Kate features regularly for Liquid Loans, plus Cointelegraph, Nomics, Cryptopay, ByBit and more.
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