Decentralized finance (DeFi) promises to fill the gap that the traditional banking system lacks, which is why it has become one of the hottest trends in the cryptocurrency markets. It now serves as a new enabler of financial services and meets the mass adoption of Blockchain and cryptocurrencies.
Due to the growth of DeFi lending platforms, there have been some of the most significant developments in the cryptocurrency industry. It was the fastest growing industry, and it grew steadily for several years.
Its popularity started in the summer of 2020 when the prices of different tokens belonging to DeFi platforms increased enormously. There are a number of great DeFi lending platforms you can choose to trade on, but be sure to do your research (DYOR) before choosing one.
DeFi Borrowing and Lendings
Like regular peer-to-peer lending platforms, DeFi lending platforms allow users to easily borrow their assets from others. Instead, they receive interest payments. Since these platforms often trade cryptocurrencies, they only receive interest payments in cryptocurrencies. DeFi platforms operate without intermediaries; therefore, users send financial rewards directly.
The beautiful thing about this platform is that anyone can apply for a loan without going through any KYC or AML verification, and there is no need to reveal any third-party identity. This makes financial services more accessible.
DeFi platforms are more secure than centralized credit platforms through the use of Blockchain.
It is necessary to provide collateral greater than the loan amount, as DeFi platforms are anonymous.
How does DeFi lending work?
Decentralized lending is quite simple to lend money to someone. But smart contracts and the decentralized application mean both its brokers and traders. Let’s face it – if you decide to borrow $50,000 from DApp, all you need is a few clicks, and you’re done.
The process is straightforward as you need to select any DApp that grants smart contracts and borrowers. You decide the loan interest rate, enter it in the application, and the loan is on its way. Once the borrower is found, the smart contract automates the loan and the loan contract.
With this in mind, what are the best DeFi lending platforms?
The Best DeFi Lending Platforms
Whether you are a lender or borrower, choosing the right platform is crucial. You should always consider key factors, such as interest rates, and see if they include the assets you want to borrow or lend, as well as the level of security.
Here is the list of the best DeFi lending platforms built after intense research; you can choose one or more according to your needs:
Aave is a decentralized, open-source, and deposits less liquidity market protocol in which you can participate both as a creditor and as a debtor. It is based on Ethereum, which offers loans in a simple and easy-to-use interface. It is a dual DeFi token model, namely aToken and LEND.
Token model is an ERC-20 token in which the interest of credit institutions is compounded. LEND is a governance token in which it obtains many types of loans and lending services, such as exchange, unsecured lending, Flash loan, and many more.
Aave was previously known as ETHLend and is a London-based company launched in 2017 by Stani Kulechov. It changed its name to Aave in September 2018, and CoreNet launched in January 2020. Aave started with $60,000 ETH tokens, which were traded instead of LEND tokens through an ICO.
It currently has over $5 billion locked up in its smart contract; all because with them, you immediately start earning interest, which accumulates in real-time.
This is a decentralized lending and borrowing platform that has become one of the best DeFi lending platforms in the market today. Maker is commonly referred to as a multi-collateral DAI (MCD) system. It has tokens worth over $7 billion stuck in smart contracts.
The maker has two main strengths: MKR and DAI, both of which are ERC-20 tokens. DAI is tied to the dollar to borrow and lend once the smart contracts are fulfilled.
DAO is a decentralized lending application on the Ethereum blockchain that supports DAI, a US-rooted stable coin. It also allows users who have access to ETH and MetaMask to borrow the DAI framework.
Maker was launched in 2015 to overcome the volatility of cryptocurrencies. It is created on Ethereum and supported by MKR governance token holders; have the power to choose the future of the protocol by voting for or against the proposed platform change.
The maker offers its users an interest rate of 9.05%, 4.6%, and an average rate of 30D. So you can borrow Protocol Maker if you own ETH, WBTC, USDC, and BAT.
It is one of the most popular, if not the most popular decentralized exchanges based on the Ethereum network. It allows users to swap between ETH and ERC-20 tokens on-chair or earn commission by providing any amount of liquidity; therefore, it uses liquidity funds for token exchanges. The good thing is that there are currently no cap regulations on Uniswap.
The exchange of the ERC20 token is done via a very simple user interface in a private, harmless, and depository way. You can trade any ERC20 token on this platform or provide liquidity to the process and earn a commission. Additionally, you can add liquidity to an existing pool or create a new one.
Each liquidity pair has a unique, freely transferable ERC20 token. Therefore, you can easily create a cash reserve on Uniswap; all you have to do is donate tokens to the markets. Exchange rates are set by market makers using the usual commodity market-making mechanism.
Hayden Adams is the founder of this decentralized lending platform. Uniswap was created in November 2018 and hasn’t stopped growing since.
There is currently $4 billion worth of Ethereum tokens in Uniswap’s liquidity pool.
This decentralized money market protocol allows borrowers and creditors to secure their contracted crypto assets. It is based on the Ethereum blockchain, which allows holders of digital assets to borrow and lend cryptocurrencies against security.
It is slightly different from other DeFi lending platforms in that it allows you to lock tokenized assets in your system using cookies. Additionally, users have the option to add assets to their cash fund and start earning compound interest.
Compound allows users to obtain excess secured loans, hold various assets, and be officially reviewed and verified. It sets aside 10% of interest paid as reserves, and the rest goes to liquidity providers.
Launched in September 2018, a San Francisco-based platform backed by major investors. Compound upgraded its protocol in May 2019. In May 2020, they moved to decentralization, bypassing governance for COMP token holders.
To date, they have over $6 billion locked in their treasury, making them one of the most popular DeFi platforms out there.
It is a smart wallet for decentralized finance. The good thing is that it is a multifunctional platform that manages digital assets quite well. InstaDApp allows its users to optimize, manage and position assets and achieve the best returns through numerous protocols.
With this platform, you can get various services such as loans, leverage, currency exchange, etc. It’s like a bank that allows you to integrate services to achieve your goal. It has a very easy-to-use user interface, which allows users to manage their DeFi investments and switch to cheaper lending platforms with lower interest rates, such as Compound, Maker, etc.
It also provides a smart wallet portal for DeFi protocols. The strong point of InstaDApp is that it is free; all you need is ETH for transaction fees.
After reading this article on some of the best DeFi lending platforms, you may have noticed that they are all more or less different, which means that one size does not fit all. The choice of a DeFi platform will therefore depend on the type of assets you have, the type of credit products you are looking for, and the level of anonymity you wish to maintain.
So choose wisely because the right platform for someone else might not be the best for you. If you are uncomfortable with any of the above platforms, you can consider making use of a centralized cryptocurrency lending platform. Choose carefully and always remember to DYOR.
Haley Hayward is an experienced writer at gblogo.com, where she’s credited with more than 200 articles covering everything from entrepreneurial stories to mental health at work.
She also oversees the Comment&Questions, which poses important admission questions to experts in the field, and regularly hosts webinars on various aspects of the business school experience.
Prior to joining gblogo.com, Haley honed her skills as a freelance writer, tackling a wide array of topics from petcare to car maintenance.
Haley holds a Master’s degree in English Literature from the University of Edinburgh, Scotland.