Decentralized Lending

In DeFi, lending is seen to be one of the popular segments, because DeFi lending allows anyone to borrow money seamlessly without revealing their identities to a third party. Given that, there is no need for users to go through the cumbersome traditional audit standards of banks.

When applying for a loan through traditional finance, it is typical for lenders to perform steps for identity verification, including identity documentation, reputation verification, verifications for loan repayment ability, etc. – truly a complex and cumbersome process.

In DeFi’s, everything is simpler as decentralized lending does not require the presence of any centralized agencies to act as an intermediary for verifications, but utilizes the governance of smart contracts instead.

By including all lending conditions into the smart contracts, lending relationships are automatically executed once all conditions are met, eliminating the need for centralized organizations to operate and manage the interactions between all parties involved. Concurrently, by having loan conditions written into smart contracts, users can collect assets; distribute assets to borrowers; and the extra funds deposited will be distributed to each lender in the pool as interest.

The decentralization, openness and transparency of blockchain technologies aim to solve prevalent issues of peer-to-peer mortgage lending platforms on the blockchain network, by ensuring fast transfers and the transparent flow of every transaction and funds.

By keeping the lending process is simple, anyone is able to provide collateral without KYC (Know-Your-Customer) processes where borrowers do not need to disclose any identity information to easily obtain loans through the reliable and complex review procedures of smart contracts. Given that, lending is no longer a patent just for the rich, and everyone can now inject capital into the liquidity pool to earn interest.

Excess Borrowing Mechanism

Example: A borrower wants to borrow US$100. The borrower would then need to mortgage a digital currency with a value of more than US$100 in accordance to the over-collateralization conditions of the platform. In the event whereby the value of the collateral falls below the loan level, the lender can deposit more collateral, or the smart contracts will sell the collateral to maintain the system's repayment ability to protect the borrower.

Excess borrowing is designed to provide sufficient buffers before the price of encrypted assets drops to the loan price, forming a protection mechanism.

Decentralized lending breaks the barriers of traditional finance by making all processes simple, transparent, fast and efficient to ensure higher benefits to users.