DeFi lending is a form of loan financing from decentralized cryptocurrency assets. It allows people to receive loans with their crypto assets as collateral without having to sell or trade them. DeFi lending has been around for years and includes platforms like SALT, AAVE, and Compound. These companies are able to offer these types of loans because they are built on top of the Ethereum blockchain which enables peer-to-peer transactions without the need for intermediaries such as banks or credit cards.
1. Defi lending is a form of loan financing from decentralized cryptocurrency assets that will help grow the crypto economy by connecting it to fiat currency and traditional markets.
2. Investors can come in at any level, whether it be as an individual with some extra crypto lying around, or lending large sums of stablecoins to help other people's projects succeed - either way there are ways for investors to get involved which is great!
3. There are two platforms that offer different types of loans: Compound and AAVE allow users to lend their crypto holdings at market rates with no restrictions on when the investor wants his or her funds back (to use).
Big players in the crypto space are beginning to see the potential of DeFi loans.
The president and COO at Gary Silverman & Associates, Juan Villaverde sees that by loaning cryptocurrency assets as part of a system for creating a "crowd-sourced bank," that investors can experience an increase in their investment portfolio over time.
There is great potential with these types of loan platforms because there are many advantages such as anonymity, instant transactions, and security which benefit all parties involved. There is also no set date for repayment of funds or any exit strategies so this type of investment would be beneficial to those who want more risk than other investments available might offer (stock markets). This form of lending provides investors with a new and secure way to diversify their capital.
The biggest risk with DeFi lending is that the collateral used can be lost. This is because there are many factors that affect the price of cryptocurrency which can result in a change in valuations and the collateral backing a loan. The underlying market value of cryptocurrencies is volatile which makes it difficult for companies to set rates for lending as well as determining when to start collecting fees from borrowers.
Many platforms don't have rules set on when investors can cash out their assets and this can cause problems if they need to borrow again in the future.
Lastly, companies like SALT and AAVE can get hacked by hackers who want to steal all of their crypto or capital. This was seen on December 18th where SALT was hacked.
Remember, always invest what you are willing to lose.