What Is Lending in DeFi?
DeFi lending and borrowing platforms, such as Aave, Moonwell, and Surdy provide users with depositing their crypto assets as collateral and borrowing against that collateral. Yes, simple as this.
This process runs through smart contracts to eliminate any intermediaries like banks or other financial organizations.
Essentially, the user places their assets into a lending pool, where they are rewarded with interest rates higher than those offered by typical savings accounts. In addition, other users can borrow against these assets, using the deposited assets as collateral to secure the loan.
The most attractive part about DeFi lending and borrowing lies in its permissionless and transparent nature. Anyone who has a cryptocurrency wallet can participate, and the terms of the loan, including interest rates and collateral requirements, are clearly settled and visible to all users on the blockchain.
The cooperation between lending and borrowing in DeFi creates a self-sufficient financial ecosystem. Lenders provide the liquidity that borrowers need, and by doing this, earn interest. As for borrowers, they gain access to funds by leveraging their existing assets.
Traditional vs. DeFi Lending
One of the main differences between DeFi and traditional lending is that traditional banking involves a red-tape process along with numerous checks on a customer’s status.
DeFi, on the other hand, issues loans way quicker as long as the user meets all the collateral requirements.
The smart contracts are in charge of the whole reviewing process, making it much easier for the borrower and the lender. DeFi lending offers higher returns compared to the traditional lending markets.
Why Lending?
So, why one should try DeFi lending? There are several evident reasons for that:
Accessibility: DeFi protocols are available to anyone with an internet connection and a cryptocurrency wallet. It makes lending and borrowing accessible almost to all people.
Higher Interest: Lenders have a chance to earn higher interest rates on their deposits compared to traditional bank scheme, as DeFi platforms often offer more competitive rates as there are no intermediaries in between.
Flexibility & Control: DeFi lending and borrowing give users more control over their financial decisions, as they can choose when to lend, borrow, or repay their loans without being dependent on the approval of any centralized authority.
Transparency: All transactions and loan terms are recorded on the blockchain, meaning users have full transparency and the ability to audit the system’s operations.
Overcollateralization: To eliminate the risk of default, DeFi platforms ask borrowers to deposit more in collateral value than they borrow. This is because there is no such thing as creditworthiness in DeFi.
Instant Access: Borrowers can get immediate access to funds without going through bureaucratic approval processes.
No Credit Scores: For borrowers, the opportunity to borrow is based on how much collateral they can offer against their loan. This means that there is no need for credit score systems.
Adaptable Repayments: Usually, DeFi platforms have quite flexible repayment terms, allowing borrowers to repay at any time without facing early repayment fees.
Lending on Notum
If you find lending a tempting and beneficial investment option, you can try it on the Notum App. There are plenty of various strategies for any token, protocol, and risk tolerance. Enjoy Morpho Blue, Compound V3, Aave, Benqi lending offers, and many others. Besides, you can try your hand at defi liquidity pools on Curve, Balancer, Aerodrome, etc. that are waiting for you to dive into them and earn more yield on your existing crypto.
Final Thoughts
DeFi lending and borrowing are truly revolutionizing and opening new horizons in the world of finance. Anyone can grow their crypto through this mechanism, as it’s simple, widely available, and safe.
By offering accessibility, higher interest rates, and greater control, decentralized lending protocols are empowering you to take your financial future into your own hands.
The Notum App is ready to help you with your leading investments by providing a user-centric platform with the best lending opportunities on the market.
