Crypto lending, one of the fastest-growing industries in the blockchain ecosystem, has made it possible to earn yields and borrow capital using digital assets.
According to a report by research company Credmark, the volume of crypto-backed loans increased seven-fold in 2019, ultimately reaching $8 billion.
Experts speculate that crypto lending will attract more investors into the crypto market by increasing its liquidity.
“You can think of lending as this incredible grease that just pushes everything forward at a much faster rate”, states Paul Murphy, CEO at Credmark.
However, lending and borrowing crypto is a risky practice due to the high volatility of digital currencies.
In fact, a significant amount of crypto-backed loans are used for margin trading operations.
“When the market drops by more than 50 percent, and you’re in a collateralized margin type of trade, you can lose all of your principal”, points out Brock Pierce, a prominent cryptocurrency entrepreneur.
While most crypto lending businesses rely on centralized custodians to manage their customers’ funds, DeFi lending platforms allow peer-to-peer lending and borrowing operations with no middlemen involved.
However, we are in the early stages of this technology, which means that these platforms may pose a number of usability downsides.
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