[Xangle Research] Top Decentralized Lending Projects to Watch in 2021
Top Decentralized Lending Projects to Watch in 2021
Would most homeowners have been able to buy their dream house without a loan? What would car owners who financed their vehicle have done without the loan? And college graduates who used student loans to get their degree?
Lending is an integral part of any growing economy. Being able to secure capital allows borrowers to grow their life or keep themselves afloat when their own capital won’t cut it. So long as the interest rate is right, and the collateral is there, all parties can benefit from a loan.
Those who own cryptocurrency can now benefit from receiving a loan. Through several decentralized lending platforms, crypto owners can lend to others while earning interest, or they can borrow crypto to take advantage of market gains or for other purposes.
There are several decentralized lending platforms worth paying attention to in 2021, from established market dominators to intriguing projects that have yet to go fully live.
Compound is a lending protocol that now serves mostly as a conduit for several “community-built” interfaces including Curv, Cointracker, and Bitgo. At the time of writing, Compound has a market cap of more than $470 million and a 24-hour trading volume of more than $103 million. In its developers’ own words, Compound is an “autonomous interest rate protocol built for developers, to unlock a universe of open financial applications”. Where there is an interest rate protocol, there is sure to be lending.
Aave is an open source protocol built to service the DeFi sector. Those who deposit coins on Aave can earn interest on those deposits, which serve as collateral. Meanwhile, those seeking to borrow cryptocurrency can do so through Aave. Per its own site, the Aave lending protocol market size is encroaching upon $2 billion. Assets traded using the Aave protocol include DAI, REP, MKR, ETH, UNI, and USDC, as well as several others.
The bZx protocol can act as a lending protocol, and many use it as the backbone of decentralized lending platforms Fulcrum and Torque. Fulcrum offers users the ability to engage in margin lending, while Torque provides loans with indefinite terms and fixed interest rates. Idle is another lending project built using the bZx protocol, as it offers users the ability to “maximize your lending returns”. Trading using the bZx protocol involves tokenized assets. The iTokens and pTokens that represent tokenized assets offer the chance for value appreciation—a potentially appealing proposition for those who use the bZx protocol.
yEarn is a suite of DeFi products that are currently in beta. Lending is among the services offered through the yEarn suite, as yborrow.finance (in beta) is the branch of yEarn dedicated to crypto lending. yEarn invests the liquidity that lenders provide into other DeFi lending protocols, aiming to give liquidity providers strong returns while also providing collateral for the loans that borrowers seek.
dYdX is a crypto trading platform that also provides lending services. Users can borrow any asset supported by the dYdX exchange, so long as they have the collateral to back their loan. Lenders can receive interest on their stakes, and dYdX adjusts lenders’ interest rates in order to reflect prevailing market rates. Some tokens available for borrowing on dYdX include ETH, USDC, BAT, WBTC, DAI, and COMP.
Maker is a major player in the DeFi space, and one of the earliest in the DeFi space. Their Maker protocol has been used to facilitate lending services. Oasis Borrow is a Maker protocol-enabled platform by which lenders can lock their crypto in a “vault”. This locked stake earns them interest by generating DAI, a stablecoin soft-pegged to the U.S. dollar. Maker has a market cap of more than $555 million at the time of writing. The lending protocol works by allowing users to put up one cryptocurrency, generally ETH, in exchange for a loan issued in DAI.
Nuo is a decentralized network for lending and borrowing crypto. The network’s goal is “rewriting global debt on the blockchain” through lending and borrowing. Those who inject liquidity into the Nuo lending network can then trade on margin with up to 3x leverage. That means that they can trade a greater amount of digital assets than the value of the collateral they put up. This ability to access digital capital higher than one’s own collateral is a pull factor for the Nuo Network.
mStable is an “autonomous, non-custodial stablecoin infrastructure” that allows users to do several things, including earning passive income by lending their crypto stakes to the mStable liquidity pool. Those who contribute to the liquidity pool receive MTA token as a reward. All transactions in the mStable infrastructure are executed through smart contracts, which play a central role in mStable’s decentralized framework.
Instadapp is a multi-use DeFi platform for both developers and those who want to access DeFi protocols through a single entry point. Lending and borrowing is one feature of Instadapp, and developers can integrate these features into their own models and use cases with Instadapp as the building block.
Dharma Protocol went live in 2019, with by propositioning to users the opportunity to engage in peer-to-peer lending. At the time, Dharma’s unique selling point was that those who provided liquidity to the Dharma marketplace would receive a fixed rate of return rather than being subject to the changing values of cryptocurrencies. The fundamental lending model for Dharma is “long-term fixed loans at fixed interest rates”. Users can also swap, buy, and sell crypto using the Dharma Protocol.
Undoubtedly one of the more interesting decentralized lending projects in DeFi, KittieFight combines the massive multiplayer online (MMO) game CryptoKitties with decentralized lending (you read that correctly: kitties and lending). KittieFight aims to go beyond traditional incentives like yield finding by deriving further liquidity from gamification. As users spend money on the game and contribute funds with the chance to win an ETH jackpot, those funds are used to support the KittiFight lending protocol.
Mainframe offers “fixed-rate DeFi lending” to “anyone” who can provide crypto as collateral. Though Mainframe was originally a decentralized communication platform, it announced in 2020 that it would begin offering fixed-rate crypto loans—ditching the communication platform—to fill what it saw as a hole in the DeFi space. Mainframe banks on the demand for clear, defined crypto loan terms among consumers in the DeFi sector.
Celsius Network believes that the opportunity to secure a crypto loan is one that should be “accessible to all”. Celsius Network advertises the opportunity for liquidity providers to earn as much as 13.86% APY in USDC, while they may earn 7.21% APY for ETH and 6.2% APY for Bitcoin. Lenders can withdraw their stake at any time. Celsius Network also advertises loans with APR as low as 1%. Its tagline: “beat that, banks”.
There are several reasons to believe that further adoption of cryptocurrency is more than a fad, but is rather a bankable trend. Digital currency appears to be the path down which most economies are headed, with cash, coins, and checks ultimately giving way to digital payments.
As confidence in crypto continues to rise, those who enter heavily into crypto markets will want access to services that they were used to in traditional markets. Lending is one of the most fundamental elements of legacy financial systems, and it has become a building block of the decentralized financial system as well.
Crypto owners want to put their coins to work for them, and they can do just that by providing liquidity to lending platforms. Borrowers want to stake their current crypto holdings to receive better returns on margins, increasing their capacity for capital gains.
Lending greases the wheels of any financial system, and so look for the above-listed lending platforms to continue their relevance in the DeFi space into 2021, and possibly beyond.