5 Use Cases of Cryptocurrency Lending
One of the most devastating market plunges — the 2008 crash — was triggered by a massive $12.68 trillion debt recurring from defaulting subprime mortgages. The New York Federal Reserve Bank reported in May 2020, that the mortgage debt stood at $14.30 trillion. This demonstrated that the lending industry has several shortcomings that it overlooks time and again.
In this present scenario, blockchain-powered DeFi lending offers a fresh take to lending primarily by making complete information available easily and through smart contracts. Apart from the mainstays of blockchain technology, cryptocurrency lending has specific use-cases as discussed below.
Interest
While the average FICO score is 705, the best interest rates are only enjoyed by 1.2% of the US population. FICO scores are unfair, in the sense that they don’t take into account social and personal factors that affect a person’s financial standing.
Cryptocurrency lending empowers lenders and borrowers to gain access to cross-border, immutable and secure options that are otherwise not available with traditional lending platforms. Furthermore, DeFi provides variable and often-higher interest rates determined by an asset’s market supply, demand, and trading volume. Eliminating middlemen, it also brings fairness, uniformity and transparency to lending.
Arbitrage
Arbitrage is somewhat like a conflict zone between exchanges and traders. On the one hand, users can borrow at a given rate and lend these assets on another platform for a higher interest. Exchanges, on the other hand, intend to minimize arbitrages, primarily by maintaining a steady supply (liquidity) of assets by borrowing from lending platforms.
Identity
For banks alone, AML compliance costs amounted to $1.5 billion annually. DeFi is revolutionizing the finance sector by providing blockchain-based member identifications solutions that are immutable, secured, transparent, and privacy-prioritized. Furthermore, interconnected blockchain networks enable seamless sharing and ID access across platforms, corroborating the member’s credit history, identification, income, and employment verification.
Flash Loans
Flash loans are non-collateralized, real-time loans, designed especially for developers. Through this method, borrowers can get instant loans and use them for executing blockchain operations. The only condition, however, is that the liquidity is to be returned to the pool within one block time. Failing to do so will nullify all the transactions that were executed with the loaned amount.
Fiat Loans
Given that they keep earning secured, passive income from their crypto-assets, most owners, especially HODLers don’t wish to sell or liquidate their cryptocurrencies. To meet rising demands in this regard, crypto lending platforms offer crypto-collateralized fiat loans at competitive interest rates.
Hybrid Bank: Transforming Crypto Lending Use-Cases
Hybrid Bank offers its diverse lending services contoured according to the needs of exchanges, mining companies, and individual users.
Considering the diverse needs of borrowers and lenders, the Hybrid Bank ecosystem accepts several types of collateral products, with competitive Loan-to-Value rates, allows individuals to select from a range of recovery/lock-in periods.
Lastly, Hybrid Bank acknowledges the value of trustworthy financing when it comes to lending, and therefore, has developed and perfected its decentralized credit information disclosure system for the blockchain.
