Lending with Crypto as Collateral – How Important is it?
General, Investing, Lending - August 25, 2020
Crypto lending and crypto lending platforms are incredibly important to the decentralized finance (or DeFi) network. In this video we explain its importance, and why so many companies are entering this market.
In order for cryptocurrencies to be considered ‘legitimate’ and not a ‘scam,’ it needs to seen as an ‘asset class.’ What does this mean? An asset class is a type of asset that can be measured in units (currencies like dollars), stored (either digitally or in a vault), and transferred (transacted between people).
Once crypto is recognized as a legitimate asset class this opens up a world of opportunities for it in the DeFi world. The biggest opportunity is using crypto as collateral. Collateral means giving something of value that can be used to take a loan.
Due to the volatility of cryptocurrencies, it isn’t a reliable asset class. This why it can’t be used as collateral easily. But this is changing. With various DeFi protocols like BlockFi, Drawbridge, Genisis and more, crypto can be collateralized to take a loan in another cryptocurrency or a stablecoins, which maintains its price. This is an important step to legitimize the blockchain and cryptocurrency space.
You’ve probably heard the saying – ‘Money makes the world go round.’ But it’s actually debt or borrowed money that makes the world go round. Soon it can be crypto and DeFi.
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