DeFi lending is an unprecedented financial mechanism, one which allows users to lend their crypto holdings to other users or protocols, in exchange for passive yield. It is actually mindblowing in its simplicity and it’s the blockchain that makes such an effective use of a user’s crypto coins which are just hanging around, to bring in a source of income.
The DeFi explosion
The three leaders in this field, Maker, Curve and Aave have a total locked in value of nearly $50 billion, showing just how popular this industry really is. The total number of Locked in Value among DeFi protocols, today is over $111 billion, an increase of 25% from a month earlier. Total inflow of money being transacted and bonded inside the blockchain is growing staggeringly fast, suggesting that DeFi is really the place to be for new protocols and investors.
Income generated and APY for users is nigh on unparalleled outside of this arena, and investors would struggle to make the kind of returns they are making here in the conventional money markets, which could help explain the popularity.
More people are now lending and borrowing inside more protocols than ever before. So why the popularity? Leveraging the blockchain for lending brings the benefits of absolute transparency, with all options on the table and every transaction conducted with no intermediary. You can borrow without ever needing to sign a contract or meet a broker. You simply open an account on a DeFi platform, and you will also need a crypto wallet. All users are on the same playing field and anonymity and privacy are a given. Lenders can benefit by taking advantage of generous interest rates, and borrowers can take loans without the need to collateralize their houses, while enjoying lower interest rates than traditional lenders.
The issues of identifying and verifying lenders and borrowers
However for DeFi companies, with such a staggering number of users, the process of identifying and verifying lenders and borrowers is challenging, and potentially the most critical part of the entire process. For long term and serious lenders, one protocol has created a product that can solve lots of these problems.
Avarta deals with authentication and identification for loans and borrowing by utilizing the user’s face as his identification. This means a user no longer needs to worry about the implications of storing (and potentially) losing multiple keys. It works by biometrically securing keys on a blockchain wallet that functions for many keys. It is secured through its Anti Bot mechanism and it offers multi-sig wallets for enterprise, while providing multi-chain, decentralized identity management with a risk-based scoring mechanism. A protocol like this gives companies that work inside the blockchain realm access to a high standard level for authentication and proof of identity.
It is safe to say that DeFi can give traditional money markets a run for their money, by bestowing loans in a trustless way, but of course safety is at the heart of dApps. As such, it is likely that a whole new industry focused solely on the authentication and identification protection will rise up to serve and support the protocols and companies offering loans and lending on the blockchain.