#OnChainLendingSurge
On-chain lending is booming, with total active loans hitting a new record of over $20 billion. This type of lending is powered by decentralized platforms like 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 many ways.
When people borrow currencies and use them to invest or trade, it increases liquidity in the market. High liquidity can push prices higher, especially if there is strong demand for the currencies.
Borrowing always comes with great risks, especially if the market is volatile like now. If there is a collapse in prices, a large wave of liquidations of collateral may occur, and this may 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 paid at interest rates set by the platforms. If the interest rates increase significantly, this may encourage people to borrow more, which also increases inflationary pressure on currencies.