The entry of DeFi has left me convinced that the financial sector is ripe for disruption. Soon, banking halls will be empty as people move from the over the counter transactions to online thanks to the blockchain technology. Lending and borrowing has never been easy thanks to Decentralized Finance.
What’s more; to participate in these ecosystems you only need to deposit tokens into a liquidity pool. These makes it easy for you to borrow but the beauty of the entire ecosystem is it allows you to earn passively over time. These pools cushion depositors against the crypto volatility.
DeFi Lending and Borrowing Freedom
Unlike the traditional financial lending institutions, DeFi protocols do not hold your funds; you can exit the network anytime and take your funds with you to invest elsewhere. You can choose to exit the crypto world for the fiat one anytime. This does not drain the pool since each has a reserve that allows you as the lender to seamlessly exit.
Most DeFi platforms use an open source code and interaction between the borrower and lender is online. With a simple interface you can interact with the system. A DeFi platform like Aave hosts more than 20 digital assets. However, not all of these can be used as collateral.
Securing DeFi Lending and Borrowing
In the event that you want to borrow from a DeFi ecosystem, you should have some form of collateral. To protect users against fraud, you cannot borrow more than your collateral amount. The beauty of getting involved in a lending and borrowing ecosystem is that you earn interest on your stakes.
Liquidity is a key factor when choosing a DeFi project to invest in. There are many projects in the market that have liquidity issues. Liquidity pools allow you to cash out your tokens anytime anywhere. A platform with liquidity limitations means your withdrawals might delay at times.
Before joining any Decentralized Finance (DeFi) a thorough background check is important. Many would be investors are being scammed because of the hype behind DeFi landing and borrowing. Scammers are lurking everywhere to hit on unsuspecting investors; make sure you are not a victim.
