DeFis (decentralized finances) are a significant force pushing cryptocurrency into the world. Today, you can access almost every service offered by traditional financial institutions through a DeFi platform. You can now lend, borrow, trade, stake, or invest from any part of the world through these platforms.
But, what does using DeFi as opposed to fiat entail? In this article, we take a look into DeFi borrowing and lending. We unleash what it involves and dive deeper to give you a list of 6 best DeFi lending platforms in 2020 that are revolutionizing global financial markets.
Decentralized Finance (DeFi) Loans
DeFi loans are loans that can be borrowed in a decentralized, transparent, and trustless environment.
A smart contract, whose code is open-source, is available for everyone to examine and audit. All you need is to provide some ETH as collateral, choose what you need, and leave the rest to the smart contract. DeFi is rapidly growing with a current trade locked value hitting over $2 Billion Total locked value.
Source: DeFi Pulse
The following are some points to note concerning DeFi loans:
- DeFi loans are standalone — the terms and agreements of DeFi loans are written in code (smart contracts). Smart contracts self-execute on dApp (Decentralized Application) once certain conditions are met. Developers are only involved in the maintenance and fixing of bugs.
- Open-Source – Smart contract code is open-source; thus, anyone can analyze and audit the agreement.
- Global Access – dApps are designed so that you can be accessed from any corner of the world as long as you are connected to the internet.
- Easy registration – There are no lengthy forms to fill when applying for a DeFi loan. Users interact directly with the dApp and smart contracts from their crypto wallets.
Best DeFi Lending Platforms in 2020
This section explores six new age money lending platforms that have poised for a great run in 2020. This list is based on platforms trading volume, interest rate terms, and supported assets, among other features.
Uniswap is a DeFi exchange that offers borrowing, staking, and trading (swap/send) services for Ethereum-based ERC-20 tokens. Instead of order books, Uniswap uses liquidity pools that help in boosting the protocol’s exchange liquidity.
A factory contract that acts as a public registry is used to link the smart contracts and allow swapping of ERC20-ERC20 using ETH as a middle layer.
The platform is one of the most active DeFi lending platforms with over $19,984,500 daily Trading Volume currently and over 830 trading pairs.
Maker is a decentralized autonomous organization (DAO) based on the Ethereum blockchain. MakerDAO was established in 2018. It aims to reduce the volatility of its stablecoin DAI and maintain its value with the USD.
Maker enables users to open a Collateralized Debt Position (CDP) through locking up ETH as collateral. Users then get DAI as a debt against the locked Ether.
MKR tokens are used for payment of Interest in MakerDAO. The DAI and MKR paid are burnt from the network immediately the CPD is closed.
DAI stands out as the only decentralized, stable coin that anyone can use without any limitations. Unlike other dollar-pegged digital currencies, DAI does not hold USD in a bank. Instead, to maintain the price peg, the Maker protocol uses Ethereum smart contracts and ETH collateral.
DAI can be lent, borrowed, or invested in other Ethereum-based digital assets.
- Compound Finance
Compound Finance is a blockchain-based, open-source dApp that allows users to lend or borrow against collateral. Any cryptocurrency user can participate in the Compound’s liquidity pool and earn interest on their crypto holdings.
The Compound platform uses smart contracts to track ownership and interests across the platform’s various lending pools. DAI and USDC currencies are prioritized over other currencies when it comes to loans and payback.
Compound gives floating interest rates that adjust according to prevailing supply and demand on the platform. Compound Finance currently supports DAI, BAT, ETH, USDC, REP, and ZRX as currencies.
Loans on the platform are capped for up to 28 days with floating interest rates- adjusted regularly based on supply and demand.
As a dYdX user, you can borrow, lend, or margin trade ETH using DAI or USDC without paying any trading fee.
Cred is a borrowing and lending platform that gives credit to individuals and institutions by using cryptocurrencies as collateral. Users of Cred can get crypto-to-crypto loans as well as fiat loans against their pledged cryptocurrencies.
Both lenders and borrowers can receive the interest/loan in the form of tokens, Stablecoin– DAI from MakerDAO, or fiat– from their bank account.
LBA is Cred’s utility token. It’s used as a medium of payment, and for Cred community governance rights. Using LBA tokens attracts higher and lower interest rates to lenders and borrowers, respectively.
Cred supports 30 cryptocurrencies, including BTC, ETH, Tether, XPR, and so on. This is one of the highest among DeFi lending platforms.
- Nuo Network
Nuo network leverages smart contracts and meta transactions to allow users easy and free access to the network.
Users can lend, borrow, or margin trade a range of cryptocurrencies, including ETH, BAT, DAI, LINK, KNC, MKR, TUSD, REP, WBTC, USDC, and ZRX. Lenders earn by placing collateral to the platform’s pooled debt reserves used to fund loans and margin trades.
The upward curving of DeFis total locked value is a crucial indicator of crypto dominance in the global financial market. From secure transactions, through the ease of borrowing, to no intermediaries, DeFi platforms are slowly taking over as the preferred mainstream for borrowing, lending, trading, and investing.
There are currently dozens of DeFi lending platforms available in the market. Choosing the best platform, though hard, means a lot to your investing journey. This article has been done for this sole purpose – to make easy the process of choosing the best DeFi lending platform.