The cryptocurrency industry has evolved gradually over time, giving rise to a whole new industry segment, better known as DeFi – short for Decentralized Finance. With the implementation of smart contracts on a decentralized ledger, the crypto industry has successfully created an alternative to the traditional financial sector. Even though DeFi platforms are not going to replace their traditional counterparts anytime soon, they offer plenty of advantages over them.
The traditional banking system operates within the boundaries of a complicated regulatory and management structure. The involvement of many big investors, middlemen, and high operations costs has turned banking into an expensive affair. Meanwhile, DeFi solutions are community-led initiatives where anyone can participate in the ecosystem as depositors, investors, and borrowers while at the same time having a say in the governance of the ecosystem. By democratizing banking, the DeFi revolution has drastically reduced the cost of banking, eliminated intermediaries, and made access to credit a lot easier without any red tape.
DeFi Loans – Quick and Convenient Credit
Credit is one of the underlying features of any financial institution, which also makes it hard to get in a conservative setting as the borrower will have to prove their creditworthiness and provide physical assets or securities as collateral. However, that is not the case with DeFi lending. Anyone can enter the platform, deposit adequate collateral in the form of crypto assets and secure a loan against it in no time. The entire process is handled by a smart contract, and as long as the collateral offered covers the loan amount, the funds (mostly stablecoins) are released to the borrower’s wallet.
While the process is much faster and a lot easier than securing loans from financial institutions, most of the DeFi platforms insist on the borrower depositing collateral valued at least twice the loan amount. On few platforms, the collateral…