The crypto sector is growing constantly. Currently, using digital assets to earn some yields and borrow capital has become possible due to crypto lending. That sector has become one of the fastest-growing in the cryptocurrency ecosystem.
Crypto lending is becoming a popular method of investment. Based on a report by research company Credmark, the total volume of crypto-backed loans increased by seven times in 2019 surpassing $8 billion.
The experts and analysts speculate that cryptocurrency lending will attract an increasing number of investors into the crypto market by increasing its liquidity. Paul Murphy, CEO at Credmark, said:
“You can think of lending as this incredible grease that just pushes everything forward at a much faster rate”
Nevertheless, lending and borrowing cryptocurrency is a risky affair because of the high volatility of digital currencies. A considerable amount of crypto-backed loans are used for margin trading operations. Brock Pierce, a prominent cryptocurrency entrepreneur, noted:
“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”
While many crypto lending businesses rely majorly on centralized custodians to manage all their clients’ funds, DeFi lending platforms enable peer-to-peer lending and borrowing operations without the inclusion of middlemen.
Nevertheless, it is still the early stages of the technology. It means that these platforms pose several usability downsides.