#OnChainLendingSurge

The on-chain lending market is currently experiencing a major boom, and the total active loans in it have reached more than $20 billion, which is a new record. This type of lending relies on decentralized platforms such as Aave and Compound, which enable people to borrow and invest using digital currencies as collateral.

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

When people borrow currencies and use them for investment or trading, this increases liquidity in the market. High liquidity can push prices up, especially if there is strong demand for 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 (liquidations) may occur, and this 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 much, this can encourage people to borrow more, which in turn increases inflationary pressure on currencies.

Note (My personal opinion is that borrowing is forbidden by Sharia and I do not recommend it)