We wrote about Most Popular Defi Applications, Tools, and Platforms (Part 1) in our former post. Now continue to this series.
Saving With Crypto: DeFi Lending-Borrowing, Asset Management, Prediction Markets
Lending Platforms
Lending markets are one of the popular sides of DeFi. Firstly, it connects borrowers to lenders of cryptocurrencies. DEFI grants to get or give a loan without approval from a middleman or third party. Most of the lending platforms use popular cryptocurrencies such as Ether to secure loans via over-collateralization. Users can earn interest to lend their money. These applications algorithmically set interest rates. So, if there is a higher demand to borrow a cryptocurrency, interest rates are pushed higher. The interest gained from the supply of different cryptocurrencies varies according to the asset and the platform.
Above all, DeFi lending is collateral-based. A user needs to put up collateral (security deposit) to take out a loan. Users don’t give out their identity or associated credit score to take out a loan. That is a significant advantage of Defi space.
Because DeFi credit is collateral-based, you need a secondary ether. Moreover, lending application does not need users ID or credit score to give loan. Conversely, this is impossible in traditional finance world.
Lending markets have one of the popular sides of DeFi. It connects borrowers to lenders of cryptocurrencies. The popular platform, Compound, allows users to borrow cryptocurrencies or offer their own loans. Users can gain money interest for lending out their money. If there’s a higher demand to borrow a cryptocurrency, the interest rates will be higher.
Decentralized lending offers crypto holders lending opportunities to gain annual yields. Borrowing in this space allows individuals to borrow money at a specific interest rate. The aim of lending and borrowing is to serve DeFi service and fulfill the needs of the cryptocurrency community.
Now we will shortly touch on some of the main Lending and Borrowing applications in DEFI space:
Compound Finance
Compound Finance, founded in 2018. This project is a lending protocol developed on the Ethereum blockchain. It allows users to gain interest by lending out assets or borrowing against collateral. The Compound protocol makes this possible by creating liquidity for cryptocurrencies. It makes this possible through interest rates set using computer algorithms. It lends and borrows popular cryptocurrencies like Ether, Dai, and Tether. Users can connect to Compound through web3 wallets like MetaMask.
Aave
Aave is a DeFi lending protocol. It offers users to lend and borrow a various range of cryptocurrencies and use both stable and variable interest rates. In addition to the typical features like Compound, Aave includes uncollateralized loans, “rate switching”, Flash Loan and unique collateral types. rate switching is the process of switching all (or part) of your mortgage balance on to a better rate with your current lender. You can stake Aave native token $AAVE for insurance to earn protocol fees and AAVE rewards. Aave has seen significant growth in 2020.
BlockFi is a lending company that provides fiat currency loans, secured with cryptocurrency collateral. It also offers cryptocurrency interest accounts on deposits including BTC, ETH, and USDC.
Ledn, Nexo, Curve, dYdX, Maker, mStable are other lending platforms that have similar functionalities.
Insurance in DeFi
As all know, insurance is a practice or arrangement that a company provides. It is a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium. Although it holds much importance, Decentralized Insurance is not very often discussed. One could need a protect against risks and threats in this highly risky space.
The transparency and trustless aspect of Blockchain opens a gate for the Insurance industry also. Decentralized insurance protocols aim to demonstrate protective measures and act as safeguards to the crypto industry.
DEFI Insurance Use-Cases
- Crypto Wallet Insurance: Some Companies have developed solutions to cover the risk of theft of crypto wallets in case of attacks.
- Collateral Protection for Crypto backed loans: If the collateral provided by the borrower is destroyed or stolen, then the loan is paid off by the insurance policy.
- Smart Contract Cover: If the smart contract address is hacked and is used for manipulation such as loss of funds from the investor account, or if funds are moved to another address, the insurance covers the loss.
- Crypto Currencies Insurance: Cryptocurrency insurance is for providing protection against cryptocurrency theft, losses as well as general cryptocurrency capital loss.
There are some well-known decentralized insurance providers in the market such as CDx, Nexus Mutual, VouchForMe, Etherisc, Opyn, etc.
Asset Management
You could manage assets with transparency and control over their investment decisions in DEFI Space. You can easily manage your real and virtual assets. It intends to make investing faster, less expensive, and more democratized. Aspects of the DeFi ecosystem play very favorably for Asset Management. The three important characteristics of asset management in DEFI. They are transparency, trustlessness, and composability.
Ampleforth aims to provide a non-collateralized digital asset that helps traders and investors diversify their crypto portfolios. Ampleforth is an asset-management protocol of DeFi.
Some other asset management applications are Zerion, Set Protocol, DeFi Saver, Gnosis, dHedge.
Prediction Markets
Finally, one of the oldest DeFi applications is Prediction Markets, where users bet on the outcome of some events. The goal of the participants is to make money, though prediction markets can sometimes better predict outcomes than conventional methods, like polling. Primary centralized prediction markets are Intrade and PredictIt. DeFi has the potential to boost interest in prediction markets since governments traditionally ban or block these things.