The world of decentralized finance (DeFi) is gradually expanding to encompass a significant share of the global financial lending space by virtue of the inherently trustless manner of operation and the ease of accessing capital. As the crypto ecosystem has grown to a $2-trillion industry by market capitalization, new products and offerings have emerged thanks to burgeoning innovation in blockchain technology.
Lending and borrowing have become an integral part of the crypto ecosystem, especially with the emergence of DeFi. Lending and borrowing are one of the core offerings of the traditional financial system, and most people are familiar with the terms in the form of mortgages, student loans, etc.
In traditional borrowing and lending, a lender provides a loan to a borrower and earns interest in exchange for taking the risk, while the borrower provides assets such as real estate, jewelry, etc., as collateral to obtain the loan. Such a transaction in the traditional financial system is facilitated by financial institutions such as a bank, which takes measures to minimize the risks associated with providing a loan by conducting background checks such as Know Your Customer and credit scores before a loan is approved.
Borrowing, lending and blockchain
In the blockchain ecosystem, lending and borrowing activities can be conducted in a decentralized manner wherein the parties involved in a transaction can deal directly with each other without an intermediary or a financial institution through…