Among holders of popular cryptocurrencies, the trustworthiness of traditional banks gets a side-eye at best. As the status quo lending platform, banks hold the proverbial “keys to the kingdom” of finance by profiting directly from the length of time a borrower takes to pay back a loan. It’s a process that’s centralized, corporate, and fairly fixed by the biggest banks — a trifecta of the main problems crypto aims to solve.
For generations, there was almost no way around these unfavorable borrowing and lending services. Then, the rising popularity of decentralized digital exchanges created a brand new opportunity: DeFi lending, by and for individuals.
The benefits
Allowing individuals — rather than big banks — to control the lending process has major pragmatic implications for freedom in personal finance, among which are
- The ability for lenders to accrue interest on crypto assets that would otherwise just sit in a wallet, waiting for favorable market fluctuations
- Non-interference from corporate entities
- The ability to set highly competitive lending rates
- A trustless system of digital asset exchange
In simpler terms, decentralized P2P lending seems like a no-brainer — but overcoming the objections of those used to traditional forms of lending may be a deciding factor in its popular adoption.
The practicality
Cryptocurrency, for one thing, still carries a popular connotation of volatility, thus its lending systems have a degree of risk. The issue here is the value of collateral dropping below the value of a crypto loan, which is a legitimate concern for those with lower risk tolerance.
For those in favor of DeFi lending, though, the steady growth of Bitcoin over the past few years, coupled with the trustless, self-managed, transparent nature of decentralized finance, makes the potential interest yields well worth it.
As with everything DeFi, much of it comes down to individual tolerance of risk factors and perception of personal freedom. What is undeniable, though, is the sheer disruptive potential of decentralized lending in a bank-controlled world of traditional lending.
While banks have long been the primary lending platform, the world of DeFi allows anyone to be a lender. For many freedom-focused crypto evangelists, this alone makes exploring a new world of lending opportunities entirely worthwhile.
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