1. Background of the surge in active loans from on-chain lending
Recently, the active loans from on-chain lending have soared to over $20 billion, breaking the record set in December 2021. This significant growth reflects specific dynamic changes in the cryptocurrency market.
2. Impact on liquidity
1. Fund injection and liquidity enhancement
· From a macro perspective, the increase in active loans from on-chain lending is equivalent to injecting a large amount of funds into the cryptocurrency market. Referencing Bitcoin-related events in 2024, when the spot BTC ETF was approved for listing, the influx of funds brought a significant increase in market activity. Similarly, the current growth in on-chain lending funds has increased the available funds in the market, enhancing market liquidity.
· The importance of liquidity in the cryptocurrency market is self-evident. For instance, when investors want to sell a certain amount of cryptocurrency, higher liquidity can ensure that transactions are completed more quickly, with relatively less impact on price. This is akin to how increased liquidity in traditional financial markets benefits the rational pricing of assets.
2. Association with other market factors
· However, this increase in liquidity does not exist in isolation. Just as the cryptocurrency market in 2024 is influenced by various macro factors, the global macroeconomic situation, monetary policy (such as the Federal Reserve's interest rate decisions), etc., are also intertwined with the liquidity provided by on-chain lending. For example, if a slowdown in global economic growth leads to a decrease in investors' risk appetite, despite on-chain lending providing more funds, they may flow more towards relatively conservative investment directions, with limited impact on the higher-risk cryptocurrency segment.
3. Impact on cryptocurrency prices
1. Potential logic driven by price
· Under normal circumstances, an increase in liquidity may drive cryptocurrency prices up. Looking back at the price fluctuations of Bitcoin in 2024, under certain positive factors (such as ETF approvals), the influx of funds was accompanied by price increases. The same applies to other cryptocurrencies, where more funds are seeking investment opportunities in the market, and when demand increases while supply remains relatively stable, there is upward price momentum.
· From the perspective of supply and demand, the increase in active loans from on-chain lending may trigger more investors to enter the market, increasing the demand for cryptocurrencies. For example, some investors who were previously on the sidelines may follow the trend and enter the market as they see funds becoming active, thereby driving prices up.
2. Risk factors for price adjustments
· However, the current situation also poses risks that could lead to market adjustments. On one hand, the substantial increase in on-chain lending scale may be a manifestation of an overheated market. Just like during certain periods in 2024, the rapid rise in Bitcoin prices was accompanied by increased volatility. If the majority of investors enter the market based on short-term speculative purposes, a shift in market sentiment could lead to large-scale capital withdrawals, triggering a price drop.
4. Impact on DeFi
1. Positive promoting effect
· The surge in active loans from on-chain lending has a positive promoting effect on DeFi. DeFi relies on decentralized lending and other financial services; more lending activities mean more users participating in the DeFi ecosystem. For instance, in some Ethereum-based DeFi projects, the growth of lending activities will attract more users to utilize other financial services provided by their platforms, such as decentralized exchanges and stablecoin issuance.
· This growth also helps enhance the visibility and market competitiveness of DeFi projects. Among numerous DeFi projects, those that can attract more lending funds often occupy a more advantageous position in the market, attracting more developers and investors to further refine and expand the projects.
2. Potential risks and challenges
· However, DeFi also faces some risks. Firstly, as the scale of on-chain lending expands, the security risks of smart contracts become more pronounced. Historically, vulnerabilities in smart contracts can lead to fund losses, and if such incidents occur, they could severely impact the credibility of related DeFi projects and user trust.
· Secondly, market competition has intensified. Although the current increase in active loans from on-chain lending has a promoting effect on the overall DeFi, if some projects cannot adapt to market changes and lag behind competitors in risk management, interest rate pricing, etc., they may face the risk of being eliminated from the market.