#OnChainLendingSurge

The on-chain lending market is currently experiencing a major boom, with the total active loans exceeding $20 billion, a new record. This type of lending relies on decentralized platforms such as Aave and Compound, which allow people to borrow and invest using cryptocurrencies as collateral.

When lending increases in this way, it can affect price inflation in several ways:

When people borrow currencies and use them to invest or trade, this increases liquidity in the market. High liquidity can push prices up, especially if there is strong demand for the currencies.

Borrowing always comes with risks, especially if the market is experiencing significant fluctuations. If there is a price collapse, a large wave of liquidations of collateral can occur, which can negatively affect the market.

Many people use loans to invest in emerging currencies or new projects. This creates a kind of “bubble,” because prices are based more on speculation than real value. Lending is driven by interest rates set by the platforms. If interest rates rise too high, it can encourage people to borrow more, which in turn increases inflationary pressure on currencies.