The idea of decentralizing finance is appealing to more people because it becomes more transparent and available to more people. Blockchain technology has come a long way with remittances and investments, but a promising area is in lending and credit.
More loans can be made available to a wider range of borrowers because blockchain is secure and transparent. New loan products and services could be developed because of the interoperability of the various blockchains.
Even though progress is being made, decentralized finance has a long way to go to compete with traditional lending systems. Many DeFi platforms are still untested and not all of them are really decentralized.
DeFi relies on cryptocurrencies, blockchains and smart contracts to provide financial services. Multiple platforms are already in place to utilize decentralized technology for lending. One of the most well-known companies is MakerDAO, which provides loans in its stablecoin, DAI. They receive their loans by making an ether deposit to the maker. It has around $508 million in the platform. EOS REX is second with about $437 million.
These two platforms mainly serve to support cryptocurrency ecosystems and the economies. However, they don’t provide loans to general users. They hold around 86 percent of all assets in DeFi platforms.
Why Decentralized Lending is the Way to Go
Numerous platforms provide credit in a decentralized system. Dharma is a peer-to-peer lending platform and has about $23.91 million in loans and it was launched in April 2019. Bloqboard is another new platform where users can choose the crypto they want to borrow or lend at specified interest rates. They can track transactions which shows why transparency makes decentralized lending such a popular concept.
Two reasons make DeFi a better option for lending. First, borrowers don’t need good credit because crypto provides the collateral. Terms of the loans are also more flexible, and users can pay the loan back as they are able as long as they have the collateral to cover it.
A second reason for decentralized lending is the ability provide loans at a reduced cost. This fact makes loans more affordable to a wider range of borrowers. Limitations in this lending platform comes from the lack of adoption of crypto. As the industry continues to grow, decentralized finance is expected to become the norm.