The Collapse Of Lending Platforms Makes Think Again Before Lending Crypto
When you have a good time, you may not realize what you have to go through in a challenging situation. Lending and borrowing crypto is a great idea. You just leave crypto in your wallet. You can get interest if you lend your crypto.
You need money. You can keep your crypto assets as collateral and borrow money. You are not selling your crypto and you will get it back after repaying the loan. In a traditional financial system, you are used to lending and borrowing money.
When you do the same in crypto on a centralized platform, you take way more risk. Recently crypto lender Genesis filed for chapter 11 bankruptcy. Not only Genesis, BlockFi, Celsius, and Voyager went out of the picture.
People assumed those crypto-lending platforms as banks. They come up with the slogan unbanked yourself. Their failure in business shows the real picture. Even involvement in earn programs in the crypto exchange where you lend your crypto has the same level of risk.
When the crypto market is in an uptrend, you will not see any problems. Everyone is making money and you keep getting interest from lending crypto. It is clear that there is a lack of risk management. They might not consider the downside of crypto properly.
Poor risk management can destroy any business. They are bound to fail and file for bankruptcy. In the end, people who are involved in those crypto-lending platforms lose their crypto assets. Even if users get back their funds, it usually takes a long time.
When you consider how much risk you are taking to lend your crypto, you may make a different decision. It is better to hold your crypto in your wallet instead of losing your crypto to get interest from centralized platforms.
Those lending platforms take a high risk with your crypto. Moreover, taking high leverage is the most dangerous thing that is able to destroy the business. You are wondering how come those huge centralized platforms become so vulnerable. There is a lack of transparency, risk management, and due diligence before making financial decisions.
Need to watch carefully how things evolve and change in the future. So what do you think? Please feel free to leave your comments. Thank you for reading this post. That's it for now. I'll be back with another post.
