When it comes to transacting, traditional currency and banking structures have many drawbacks. Cryptocurrencies provide a decentralized solution to the problems that come with the two choices. The launch of DeFi took blockchain technology and digital currencies one step closer to mass acceptance.
DeFi lending follows a similar route, attempting to close the gap between conventional banking and all consumers worldwide without the use of intermediaries. Using distributed ledgers, dApps, and smart contracts, lenders and borrowers can now deposit, bail out, or borrow currencies in or for interest. DeFi lending platforms make this vision a reality by behaving like conventional banks while removing the need for third parties.
Advantage of DeFi lending
Transparent lending
These platforms include loans through peer-to-peer transactions, eliminating the need for a centralized authority. Smart contracts take care of the transactions and their specifics entirely. Since the data are saved in a public blockchain, accessing them is easy. All parties can easily verify transaction data, resulting in the straightforward transfer of any funds.
Loans Can Be Obtained More Quickly
Traditional banks provide loan facilities that can take anything from a few days to several weeks to complete. This is due to the fact that a borrower is often required to fill out and sign several documents in order to obtain a guarantee.
DeFi lending sites, on the other hand, are faster; as a result, someone in need of a crypto loan would need to open a crypto wallet and a smart contract. The app is much easier to use since anybody with a smartphone can access the loans.
Assets Are Easily Accessible
Having access to assets like stocks and gold in conventional banking systems can take a long time. To keep a company's stock, one must adhere to a slew of regulations.
Cryptocurrency, on the other hand, is very simple to hold. Since peer-to-peer lending is a direct transaction, the funds are transferred as soon as an agreement is reached.
Loans' Security
Lenders on these platforms can rest assured that their money is secure. To cover lenders from defaults, most DeFi lending platforms use over-collateralization strategies. The borrower will repay the loan sum plus interest according to the protocols. These platforms have also devised methods to shield lenders and borrowers from losses caused by asset price drops.
Continuity
Another factor that improves network performance is the immutability of blockchain-based transactions. As a result of having proof of loan transactions, DeFI lending becomes even better for lenders.
Conclusion
Traditional banking structures have long served the lending community, but their weaknesses make them unreliable for both lenders and borrowers. DeFi lendings have a plethora of benefits that make it simple for users to obtain loans.
The only notable issue with DeFi lending is the high interest rate, which continues to perplex crypto enthusiasts. They do, however, have an advantage over conventional lending because they offer users the option of using different rate forms. Traditional lending will be replaced by DeFi crypto lending in the near future. Furthermore, DeFi lending may be part of the solution to the global crypto adoption puzzle.