Top DeFi Lending Platforms February 2024
Best DeFi Lending Cryptocurrency platforms sorted by market value, price and trade volume.
How DeFi leaning works
As organizations began to experience the potential of Blockchain, the financial industry also presented the need to build blockchain-based fintech applications. Covering nearly every financial service, from online payments to trading and cryptocurrency storage, the Blockchain was created to transform the traditional financial system. With the emergence of DEFI (Decentralized Finance), the Blockchain grew and became even stronger.
With a lot of excitement already generated in the market, Defi has continued to move forward and has attracted an impressive amount of capital since 2020. According to Defi-Pulse, the Total Locked Value (TVL) in the Defi protocols is at $20,46 billion today, compared to less than $1 billion a year ago. The main point here is that Defi has grown more than twenty times in a year, clearly indicating the popularity that Defi has grown.
Defense loans have found their status quo. The leaders (Maker, Compound and Aave) have solidified themselves as users' top choice for lending and borrowing Defi tokens. Defi's three largest creditors are Maker, Aave, and Compound, with a total value of $4,25 billion, $2,82 billion, and $2,64 billion, respectively.
Let's understand what makes Defi and Defi loans such a popular success. The article discusses each of the following points in detail:
What is Defi?
In simpler terms, decentralized finance is an ecosystem of financial applications based on Blockchain technology that operates without any intervention from third parties or central administration. It uses a P2P network to establish decentralized applications that would allow everyone to connect and manage their assets, regardless of their status and location. Its goal is to provide an open source, transparent and permission-free financial services environment.
Smart contracts are the basic layer for decentralized finance, as they are self-executing and do not require intermediary oversight. Since Ethereum introduced the Defi concept, most Defi applications are built on the Ethereum Blockchain.
What are Defi Loans?
Defi's borrowing platforms aim to offer cryptographic loans in a non-reliable way, ie without intermediaries, and allow users to enroll their cryptographic currencies on the platform for borrowing purposes. A borrower can borrow directly through the decentralized platform known as P2P lending. In addition, the loan protocol allows the lender to earn interest. Among all decentralized applications (DApps), Defi has the highest lending growth rate and is the predominant contributor to cryptographic asset blocking.
Defi Loans (DeFi leaning) vs. Traditional Loans
The underlying technology for credit defense is Blockchain; Defi utilizes all of its unique features and performs exceptionally well compared to traditional loans. Defi lending offers full transparency with easier access to assets for all money transfer processes, without involving third parties. It provides the most straightforward loan process; the borrower needs to create an account on the Defi platform, have an encrypted wallet and open smart contracts. Defi offers a censorship-free environment, which means that there is no preferential treatment while guaranteeing immutability.
Defi credit benefits both creditors and debtors. It offers margin trading options, allows long-term investors to borrow assets and earn higher interest rates. It will also allow users to access fiat currency credit to borrow at rates lower than decentralized exchange rates. In addition, users can sell it in a centralized exchange for a cryptocurrency and finally lend it to decentralized exchanges.
How Do DeFi Lending Loans Work?
The underlying value of cryptographic assets can go up or down, but sitting idle in portfolios doesn't accrue interest. Just holding a particular cryptocurrency won't do you any gain. This is where Defi loans come into play. Defi loans allow users to lend their encryption to another person and earn interest on the loan. Banks have always used this service to the fullest. Now, in Defi's world, anyone can become a creditor. A lender may lend its assets to a third party and may earn interest on that loan. This process can be done through loan pools, lending offices of traditional banks.
Users can pool their assets and distribute them to borrowers using smart contracts. There are several ways to distribute interests to investors; therefore, it is recommended and worth investing some time to research to identify your type of interest. The same goes for borrowers, as each group will have a different approach to borrowing.
When taking a loan from a bank, a guarantee associated with that loan is required. For example, for a car loan, the car itself is collateral. When the user fails to pay the loan, the bank seizes the vehicle. The same happens with the decentralized system; the only difference is that the system is anonymous and does not involve any physical assets used as collateral. To get a loan, the borrower needs to offer something more valuable than the loan amount. Smart contracts are used to deposit that amount of currency of value at least equal to the loan amount. Warranties are available in a wide variety; any cryptocurrency can be used to exchange borrowed cryptocurrencies. For example, if a user needs to borrow a bitcoin, he needs to deposit the price of a bitcoin into the DAI.
Furthermore, Bitcoin prices continue to fluctuate wildly. A case may arise where the cost of collateral falls below the loan price. Now, here the question arises: How to handle this situation? An example could explain it better. Let's say a user wants to borrow 100 DAI. MakerDAO requires borrowers to guarantee their loans at a minimum of 150% of the loan amount. This immediately means that the borrower needs to secure the loan with $150 in ETH. And when the collateral value drops below $150 ETH, it is subject to the liquidation penalty.
What are the benefits that Defi Lending offers its users?
- Increased loan origination speed – Digitally enabled loan processes have the most significant advantage of fast processing speed. Defi's lending platforms are supported by cloud-based services, fraud detection and detection analytics, and machine learning calculations for optimal loan terms and risk factors. All of these technologies end up helping to speed up the process. Once the loan is approved, lenders submit offers via electronic contracts.
- Greater consistency in loan decisions – Rules describing credit policies ensure consistency in lending decisions. Variations in the assessment of candidate attributes and the structuring of deals by underwriters are eliminated.
- Compliance with Federal, State and Local Regulations – Decision rules provide a record of who, when and where rules were used and what rules were in effect. It plays the role of proof and ensures that the lender complies with federal, state and local regulations.
- Analysis for process improvement and portfolio profitability – Analysis can help lenders and borrowers get the most out of the digital loan process. Monitoring loan applications over a certain duration (a week, month or year) can help lenders anticipate and allocate adequate resources to accommodate seasonal demands. The analytics also provide insight into demographics, loan sources, credit levels, and more. The portfolio can be improved by determining how borrower characteristics and credit policies affect loan performance.
- Loan without Defi's permission – Allows open access without permission, which means anyone with an encrypted wallet can access Defi apps built on the Blockchain, regardless of their geographic location and without any minimum amount of funds required.
- Transparency – Public Blockchain transmits all transactions on the network and is verified by all users on the network. This level of transparency around transactions allows for rich data analysis and ensures verified access to all network users.
- Decentralized architecture – Immutability Blockchain ensures tamper-proof data coordination and increases security and auditability.
- Agenda – Smart contracts are highly programmable, automate execution and enable the development of new digital assets and financial instruments.
- Interoperability – The use of an interconnected software stack ensures that Defi protocols and applications integrate and complement each other.
- self custody – The use of Web3 wallets (such as Metamask) ensures that Defi market participants maintain strong custody of their assets and control their data.
How do DeFi Lending's lending platforms help the financial services industry?
- Loans and Loans – Defi's most widely used loan applications involve peer-to-peer loan and loan protocols. Aave, Compound and Maker are some of the most popular Defi platforms.
- Savings Defi's lending platforms – have come up with countless innovative ways for people to manage their savings. By connecting to different lending platforms, users can take advantage of the services of interest-earning accounts and maximize their earnings. Interest earning accounts can help the user to increase their profits compared to the traditional savings account exponentially. The most popular economy dApps include Argent, Dharma and PoolTogether.
- Asset Management – Defi loan protocols and cryptographic portfolios like Gnosis Safe, Metamask and Argent allow users to be the guardians of their cryptographic assets. It allows users to quickly and securely interact with decentralized applications and take advantage of the services of buying, selling, transferring encryption and earning interest on investments.
This detailed discussion shows that Defi's loans have a high potential to reshape the entire financial system. It tries to decentralize key traditional financial services such as payments, trade, investments, insurance, loans and loans. Defi lending Being involved with intriguing technology does offer vast opportunities to revolutionize the global financial landscape.