The practice of lending has always been popular in the world of finance. It has gone through many changes over the years – from crops to cash – but the idea has generally remained the same. However, since the launch of digital currencies, a new form of lending has made itself known: crypto loans. Despite hesitance from some people, this type of lending has cultivated a group of supporters and years later, it is garnering more attention and development.
Demand for deviation from the norm
The promising demand for cryptocurrency and banking services specializing in cryptocurrency is much higher now than it ever has been. According to the PointPay platform, Internet users’ interest in purchasing cryptocurrency, Bitcoin, and Ether are higher in certain cases than it was in 2017. Google Trends confirms this with data illustrating the amount of “buy cryptocurrency”, “Bitcoin”, “Ethereum”, and “Binance” requests.
Nowadays, the lending market where Bitcoin is the collateral has a value of $25 billion. Bitcoin is a frequent – and convenient – subject of collateral because confirming its ownership is easy. Furthermore, no additional assessments of such collateral are required, which is the case with real estate or other types of property.
The development and impact of DeFi
A key factor that many can argue is helping the growth of the crypto loan industry is decentralized finance (DeFi). While not the sole reason for crypto lending’s increase in popularity, its own development will influence the practice.
Most of the aspects of banking, lending, and trading are under the management of centralized systems. These systems are typically operated by gatekeepers and governing bodies. DeFi challenges this type of financial system by taking power away from middlemen and gatekeepers and transferring this power to everyday people through peer-to-peer exchanges.
By utilizing cryptocurrency and blockchain technology, DeFi can effectively manage financial transactions. DeFi’s main objective is to democratize finance by replacing conventional centralized institutions with peer-to-peer connections. Ones that can provide a wide spectrum of financial services that range from everyday banking, loans, and mortgages to complex contractual relationships and asset trading.
Defi is entering into an array of financial transactions, both simple and complicated. It gains its power from decentralized apps (DAapps) or other programs such as ‘protocols’. DApps and protocols typically deal with Bitcoin and Ethereum transactions (i.e. the two leading cryptocurrencies).
Will this prosperity last?
The Bitcoin loan market has seen exceptional growth and crypto lending as a whole has garnered a substantial audience. Whatever the reason may be for these types of loans capturing a large amount of attention, they are making their mark. Bitcoin loans in particular generate faster than traditional loans and creditworthiness is not important, meaning that paperwork isn’t either. These advantages appeal to many, which all but guarantee a continuing interest in crypto loans.
