How Cryptocurrency Is Changing Lending
Elizabeth (Libby) Keatinge Scheideler, a business journalist and the founder of online publication FundsSavvy.com, has reported extensively on global cryptocurrency markets. The topics Elizabeth Keatinge has covered include how to calculate cryptocurrency taxes, bitcoin predictions, Initial Coin Offerings and new cryptocurrency exchanges.
A novel idea more than a decade ago, today cryptocurrency represents a significant evolution in currency, including the potential to change the lending industry. Cryptocurrency brings with it the opportunity for consumers to have more control over their money because it exchanges the middle man for a blockchain system.
More recently, as the electronic currency platform has continued to evolve, decentralized financing (DeFi) is increasingly becoming a popular solution for consumers looking for financing. DeFi aims to create a crypto-currency platform that would center on not only lending but borrowing, structuring derivatives, and trading securities.
Unlike most cryptocurrencies which are characterized by their volatility, DeFi uses stable coins, which are coins that are guaranteed through traditional currency, for example, the Chinese yuan or the dollar. USDT, USDC, TrueUSD, Dai, and Paxos are examples of stable coins.
Through a DeFi contract, borrowers can take out loans without submitting an application or even needing to have a bank account. Moreover, the smart contract acts as a lender that calculates interest rates through an algorithm based on supply and demand. Alternatively, some contracts involve fixed interest rates that are guaranteed through loaning coins to the contract.
Collateral for these contracts are the digital assets that are locked in the contract until the loan is paid. Due to the fact that these contracts are a relatively new idea, the only caveat is that collateral requirements are extremely high, making taking out a loan in this way impractical in most instances at this point in the field’s evolution.
