All About DeFi Lending: Part 1

Would you think I was crazy if I said we could:

• Borrow money without a bank or broker
• Take out a loan with 0% interest
• Produce that loan within minutes
• Never have to use a house as collateral, supply ID or submit paperwork ever again

Because the truth is, we CAN do all of this. And we can do it right now.

And what’s more, it’s completely safe and legal.

 

This is decentralised finance, commonly referred to as DeFi. 

 

In DeFi, we don’t have to rely on our centralised banking system because, in DeFi, we are our own bank.

There are so many things the DeFi space opens for us, and I’m going to be covering them all in a series of emails throughout the year. But for this first deep dive, I’ll be focusing on DeFi lending, to give you a bit of a flavour of what’s possible when we move beyond the legacy financial system we’re currently in.

We’ll be looking at:

• The differences between centralised and decentralised finance
• The benefits of DeFi Lending
• How does it all work
• Are there any risks involved
• How you can invest in DeFi

So, if you’ve wanted to learn more about this sector or simply want to know what all the fuss is about, this is the email for you.

Let’s jump in!

DeFi vs CeFi – key differences

To understand DeFi, let’s first look at Centralised Finance (CeFi), which is how traditional finance works.

With CeFi, there’s a central governing body, such as a bank, looking after our funds. This comes with certain safeguards, but it also comes with restrictions too. For instance, we can only access a set amount of our money at a time, we need permission to do certain things, and in extreme cases, we can be locked out of our own accounts.

And let’s not forget the paperwork…

Dealing with banks requires lengthy application and assessment processes and constantly having to validate our identity.

Exhausting!

DeFi, on the other hand, has no central governing body or institution. The ownership is distributed between many people, so it can’t be shut down like a centralised system can. DeFi is not subject to the rules, regulations or whims of one controlling authority, and we can transact without ever having to deal with a bank or broker.

Essentially, it takes out the middleman and gives the power back to us.

It’s worth mentioning that anything we can do in CeFi, we can also do in DeFi (often much cheaper and a whole lot quicker). We can:

• Earn yield
• Store money in cryptographically secured vaults (the blockchain)
• Transfer money overseas / across jurisdictions
• Hold money in a wallet
• Borrow, lend, trade, sell and move money around

And we do it all peer to peer.

I believe DeFi has the potential to completely revolutionise how we borrow and lend money. And it’s not something that’s happening in the distant future, it’s happening right now.