{"id":2105536,"date":"2023-05-23T14:33:53","date_gmt":"2023-05-23T18:33:53","guid":{"rendered":"https:\/\/platoaistream.net\/plato-data\/reputation-matters-for-on-chain-lending\/"},"modified":"2023-05-23T14:33:53","modified_gmt":"2023-05-23T18:33:53","slug":"reputation-matters-for-on-chain-lending","status":"publish","type":"station","link":"https:\/\/platoaistream.net\/plato-data\/reputation-matters-for-on-chain-lending\/","title":{"rendered":"Reputation matters for on-chain lending"},"content":{"rendered":"
Lending within DeFi has shown enormous potential. Taking place on the blockchain, it can provide increased transparency, lower fees, and worldwide access, and the community has taken notice. <\/p>\n
According to data from DeFi pulse, as of March 2023, there are around 220,000 active borrowers and 840,000 active lenders on DeFi lending and borrowing platforms. The space has increased from $1 billion in total value locked in 2019 to over $120 billion in March 2023. <\/p>\n
With many DeFi lending protocols relying on smart contracts for execution, there is also the promise of lending without the risk of human errors and default. Community participants proudly state, \u201cThe only people who received money from Celsius are those who borrowed through smart contract protocols.\u201d <\/p>\n
While the idea of a trustless, transparent lending system that spreads across borders and helps financial inclusion is wonderful, it is yet to go mainstream. Facing UX challenges, reputational limitations, and trust issues, despite its promise, it still may have a long way to go. Approaching the issue of on-chain identity to allow for under-collateralized lending could, however, supercharge adoption.<\/p>\n
Given the past year\u2019s events, the sector is perhaps forgiven for not yet realizing mainstream growth. With the names Celsius and FTX now sending shivers through the spine of anyone remotely interested in DeFi, the reputation of centralized lending in the space has taken a significant blow. <\/p>\n
Centralized lenders have an advantage. Individuals can deposit currency for yield and take out overcollateralized loans like a bank working with fiat currency. The terms usually favor traditional finance and allow digital asset holders to keep their crypto. Institutional borrowers can also engage, taking out large loans for investment \u2013 the failing piece of more than one casualty last year. <\/p>\n
The engagement with a centralized lender is familiar; many turn to them as a more attractive way to take out a loan on their digital assets.<\/p>\n
However, companies often do not embrace transparency, and instances of allegedly fraudulent practices made public last year has left many questioning the remaining companies working with the space. <\/p>\n
\u201cI think for specific types of individuals\u2026DeFi offers value propositions that CeFi (Centralized Finance) will never build,\u201d said Nathan Cha, Marketing Lead of Dydx, at Consensus 2023. <\/p>\n