All About DeFi Lending: Part 2

Welcome to part 2 of our 3 part DeFi Lending deep dive.

Last time, I covered some of the key differences between Centralised Finance (CeFi) and Decentralised Finance (DeFi) and in this email I’m going to share some of the benefits of DeFi lending and how it works.

Let’s jump in.

5 Benefits of DeFi Lending

1. No middleman. With DeFi, you don’t transact with a bank or a broker, you deal directly with the DApp (Decentralised Application). It’s quick, easy and you don’t need to jump through hoops to manage or transact with your own money.
2. Transparent transactions in real time. DeFi uses smart contracts on the blockchain, which is essentially a ledger that keeps a record of every transaction made on that network. Unlike banks, this information can be accessed freely at any time.
3. No geographic limitations. All you need is an internet connection and you can transact as you wish, no matter where you are in the world. You could be 1,000 miles from the nearest bank and it wouldn’t make a difference because, with DeFi, you are the bank.
4. Trust-less for all parties. In the CeFi world, you have to place your trust in large institutions who may not have your best interests at heart. Not so with DeFi! The DeFi world has its own ecosystem and is governed by code, not people or institutions.
5. Complete financial sovereignty. DeFi offers full and complete control of your funds, something we’ve never had before. Your money can’t be confiscated or restricted in any way and you have complete freedom to do with it what you choose.

So, how does it work? 

With DeFi lending, you execute all your transactions through smart contracts (an agreement that is stored and executed on a blockchain). Smart contracts are essentially code that is self-executing when pre-defined conditions are met.

You and the other party agree your terms and interest rate then create and execute the contract through a DeFi lending platform. There are no daily limits with DeFi and all your interactions are peer to peer. There’s no need to put up your house or other assets as collateral because your crypto acts as collateral. Also, because you’re not reliant on a central authority to undertake time-consuming checks, this can all happen within minutes. The smart contract does all the heavy lifting and ensures the transaction goes through safely and is recorded on the blockchain.

In my opinion, smart contracts don’t just streamline the process of borrowing and lending, they’re completely revolutionizing it.

So how can you get involved? And are there any risks?

I’ll be covering these next time.