Crypto lending is a broad term used to define the ever-growing environment in which people can use cryptocurrency in order to acquire a loan and this gain access to financing — be it in fiat or in crypto. It works in a similar fashion to peer-to-peer lending, where lenders and borrowers are connected via online platforms, but the trade currency is crypto instead of fiat money.
This concept allows market participants to lend or borrow using cryptocurrency as collateral for access to stablecoin or fiat loans which can then be used as, say, investment or working capital. Loans are granted in exchange for interest rates on the asset, much like taking out a loan with a bank. But, there is a crucial difference — market participants often don’t need to complete complicated application processes or credit checks in order to start lending or borrowing, which allows them to access funds faster and leads to a more stable and fast capital flow.
The key concepts that drive crypto lending are decentralization, automation, and enforcement by code. DeFi — Decentralized Finance — and by extension crypto lending, cut out the middlemen and human administrative elements, allowing for greatly reduced fees and significantly faster execution.
æternity and Crypto Lending
æternity is specifically designed to operate as a highly secure, open-source blockchain protocol that facilitates the development, deployment, and operation of æpps at scale — and is therefore ideal for crypto lending and other DeFi applications.
Security is a key factor in creating reliable DeFi applications with blockchain technology. The flawless smart contract security provided by Sophia — æternity’s smart contract language — combined with the FATE virtual machine and protocol embedded oracles, allows æternity to create a uniquely interoperable and scalable ecosystem for decentralized finance and crypto lending.
The æternity network is already home to several DeFi projects that provide crypto lending services.
SmartCredit.io provides key components of an alternate blockchain-based financial system - the crypto lending/borrowing, the fixed income funds, and the integrations. It operates on a principle of fixed-term and fixed interest loans leading to a very low collateral ratio that is 2 to 2.5 times lower than the market average
Assetify , another æternity-powered crypto lending platform, allows businesses to provide crypto-backed loans in just a few clicks. Assetify is licensed by Estonian FIU to store and operate digital assets, meaning that the entire process is vetted and secure. It uses multisignature wallets to store and secure funds, enabling a trustless link between the borrower and the lender, all the while ensuring that collateral can be tracked and is locked until the loan is completed.
Read the full article to find out more about the crypto lending landscape, including summaries of Bitcoin Suisse, BlockFi, MakerDAO, Compound and AAVE: https://blog.aeternity.com/crypto-collateral-loans-the-defi-revolution-8361907ec096