Defi loses an overview of its core vision, since it is gradually resembling the idea that strived to change-op-e-ED
Defi loses an overview of its core vision, since it is gradually resembling the idea that strived to change-op-e-ED
because Defi continues to expand, it risks exactly the ideology that originally wanted to reject it, since the main beneficiaries of this new financing paradigm are already those who already have digital assets.
The exchange of intermediaries does not improve finances directly
In financial products and solutions, almost everything has a catch, be it extraordinary returns or low financing rates. Decentralized financing (Defi) is no exception.
Defi has achieved immense popularity because it tried to eliminate the inherent problems and disadvantages of traditional finances (tradfi). Although it cannot be denied that Defi's emergence has actually reduced the access barriers to financial solutions, we cannot overlook the uncomfortable reality that Defi becomes the same at least to a certain extent as tradfi, with a "decentralized" day.
The blurring border between Defi- and Tradfi credit
In the traditional system, everyone who wants to borrow money from banks or private lenders must indicate their creditworthiness. If the score fulfills the criteria, the loan is approved at a fair price. If the creditworthiness is low, the borrower may have to compromise for higher interest rates. In some cases, the lender can also ask the borrower to deposit collateral for the loan.
While Defi is exchanging central authorities with a peer-to-peer system, borrowers have to deposit considerable collateral for access to products such as Defi loans, which are often higher than the total amount that they want to lend, which is referred to as oversurance. In addition, entry into the Defi market and the use of its financial products requires an understanding of blockchain technology and cryptocurrencies-knowledge that has a fraction of the world population.
Defi credit allocation originally aimed to enable a “real decentralized lending”, in which every capital requirement could take out a loan without intermediate. Unfortunately, this is not similar to today's Defi credit business. It has effectively developed into another mechanism for existing owners of digital assets to achieve returns by using what they already have. Today's defi does not strengthen the global bank without bank details.
as such, Defi seems more lender -oriented and not as comprehensive as advertised. For example, we take the parabolic growth of the Defi-Kredit ecosystem in recent months. The leading defi-kreditplattforms and -protocolle have accumulated total value blocked (TVL) of more than $ 60 billion $ .
aave, a source-open and unnecessary credit and credit protocol, almost 20.96 billion US dollar TVL distributed on staking and liquidity pools Avalanche, Ethereum and Polygon. Likewise, maker dao boasts at the time of writing a target = "_ blank" href = "https://defillama.com/protocol/makerdao" rel = "noopener"> tvl of 17.06 billion US dollars and rising, compound has a tvl of 11.33 billion US dollars , and instadapp-creveal gross $ 12.17 billion TVL , which emphasizes the comet growth of Defi in general.
The boundaries between tradfi and defi blur at an alarming pace. Here is an example.
A small business owner from a developing country needs financing. Unfortunately, you have no access to traditional financial services. Somehow they pass when lending and create an account on one of the existing platforms. If you apply for financing, find that the security requirements will be higher than you want to borrow what you obviously have.
We also have to look at the other side, the perspective of the Defi credit platform. Understandably, Defi credit platforms need collateral to protect the lenders' investments. But does this justify the need for overly secure loans? At the moment, Defi does not bring people to the system without a bank account, but rewards privileged crypto holder with return for their existing assets.
non-secured defi loans: theoretically great, but there are also disadvantages
To be honest, there are no non-secured defi credit platforms (none that I could find), except gluwa , an alternative financial system for bankeless. Gluwa has worked together in emerging countries with various international companies such as Aella, Multis, Creditcoin, Jenfi, Wyre, Gopax and Consenys. The integration with the Aella consumer credit app achieved more than two million customers across Africa. Go out together, Gluwa and Aella have made more than a million transactions possible, which creates more than 28 million blocks.
gluwa does not require users to publish collateral. But there is a catch. The interest rate for these insecuated loans is much higher than with the usual secured defi loans available from AAVE, compound and similar platforms.
as such, Gluwa, although it is a defi solution, shares many similar features with the traditional paradigm of lending, such as private unsafely loans in which the lender absorbs risky borrowers and passes on this risk in the form of higher interest.
The way forward
There is a lot to consider between overly secure defi loans and the highest-interest of insecvers. While platforms require collateral, they actually make it easy for everyone to access capital by clicking. But on the other hand, only for people who already have digital assets. It negates the idea of inclusiveness and equal opportunities for everyone - essentially the basics of Defi. The other side of the Defi Coin is that unsecured loans demand higher interest rates to compensate for the risk, which in turn destroys the vision of defi of fair and justified earnings for everyone.
A really decentralized credit and credit process process must be balanced and returns equally for lenders and borrower, which is difficult to achieve. In the future we can experience a better version of decentralized lending, or in the end we can end up with a "really" decentralized lending that is perfectly similar to the traditional financial market and thus closes the circle and will be exactly what it wanted to change.
What do you think of defi loan allocation today-fair or not? Let us know in the comment area below.
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