What does it mean?
There is rapid growth in lending activity within blockchains, especially on decentralized finance (DeFi) platforms. In other words, more and more people are using cryptocurrencies as collateral to obtain loans directly from other individuals on a blockchain, without intermediaries like banks.
Why is it important?
* Financial access: It allows anyone with an internet connection to access financial services, without the need to meet traditional bank requirements.
* Greater flexibility: Loans in DeFi often offer more flexible terms compared to traditional loans, such as variable interest rates and shorter terms.
* Greater efficiency: Transactions on the blockchain are faster and more transparent, reducing costs and processing times.
* New opportunities: A new ecosystem of applications and financial services has emerged based on lending in DeFi.
How does it work?
* Collateral deposit: The borrower deposits an amount of cryptocurrencies into a smart contract on a DeFi platform.
* Obtaining the loan: The borrower receives an amount of stable cryptocurrencies or other cryptocurrency as a loan, using their deposit as collateral.
* Interest payment: The borrower pays interest on the loan, and once they repay it, they recover their collateral.