Lending & Borrowing is an essential fork in DeFi. And this is “State Of Lending & Borrowing” in the “State Of” series. In today’s article, we will find out an overview of the operation and development direction of the lending & borrowing project group.
Core knowledge: The Lending & Borrowing market on DeFi is less attractive to individual investors due to the lack of real demand, reflected in the large declines in indicators such as TVL, total debt, and total revenue. ).
OVERVIEW OF LENDING & BORROWING IN DEFI
Lending & Borrowing is one of the most important financial system pieces. The whole concept is quite simple.
- Lenders or depositors provide money to borrowers in return for interest on their deposits.
- Borrowers or lenders are willing to pay interest on the borrowed money in exchange for immediate cash.
Lending & Borrowing In DeFi & TradFi
The difference between lending and borrowing in DeFi from lending and borrowing in the traditional market lies largely in the way it is implemented, instead of the Peer to Peer lending and borrowing markets like the traditional market. The lending and borrowing market in DeFi has an implementation that is more in line with the existing blockchain infrastructure – Peer to Pool.
The overall working of the peer-to-pool model can be explained as follows: all lenders will deposit assets into a common pool and borrowers will borrow assets from that pool. Borrowers will pay the related interest on the loan they have borrowed. Interest will be prorated to all who have deposited it in the pool.
The lending and borrowing market is one of the main sources of new “money” for DeFi through debt positions. It is also one of the main sources of sustainable yield for the DeFi market.
Similar to DEX, lending and borrowing is the foundation for other DeFi protocols to build on, through the process of combining and aggregating, they create other DeFi protocols that are more useful to users in the crypto market.
To learn more about Lending & Borrowing, please refer to Lending & Borrowing Analysis
CLASSIFICATION OF MAIN PROJECT GROUPS IN LENDING & BORROWING
In the lending and borrowing category, there are two main sub-categories:
- Lending protocols.
- CDP protocols (also known as debt protocols).
Lending protocols refer to protocols that allow users to borrow or lend crypto assets. For example, users can deposit ETH to borrow DAI, LINK or any crypto asset the system supports.
Here are some of the market-leading lending protocols:
CDP protocols refer to protocols that allow users to collateralize crypto assets to create collateralized debt positions and mint the protocol’s stablecoins. Basically, users are mortgaging their crypto assets and borrowing stablecoins from the protocol so this project team is placed in the lending & borrowing category.
Here are some of the market-leading CDP protocols:
Stablecoins issued from CDP protocols can be reused in other lending protocols. For example, DAI is a stablecoin issued by Maker DAO and accepted as collateral in the largest lending protocols like Aave and Compound.
BUSINESS PERFORMANCE OF SUB-CATEGORY UNDER LENDING CATEGORY
In this section, we will get an overview of the operation and main development direction of the lending & borrowing category in recent times.
Poor Performance In H1/2022
According to defillama and tokenterminal data, lending and borrowing are the categories with the largest TVL in the DeFi market at the moment, total TVL falls in the range of $27 billion including TVL of lending protocols and CDP protocols. Compared to the beginning of 2022, the TVL of the lending & borrowing category has decreased by nearly 50%.
Which, the top three protocols are Aave (lending), Maker DAO (CDP), and Compound (Lending). These three protocols have a total TVL of $20.69 billion, accounting for 76.4% of the total TVL of the Lending & Borrowing category in the entire DeFi market.
Looking from the beginning of 2022, the negative effects of the macro market, the collapse of the Terra ecosystem and various CeFi institutions have greatly affected the giving and borrowing market in DeFi, three important data Important factors reflect the “health” of the lending & borrowing category including TVL, total debt, total revenue (revenue) all had a noticeable decrease.
This shows that the capital flow from users is no longer pouring into the group of lending and borrowing projects. The bearish market sentiment also makes users more careful in using leverage, reflected in the total outstanding balance at the end of Q2/2022 has decreased by more than 50% compared to the beginning of the year. As a direct consequence, the total revenue of lending & borrowing projects tended to decrease sharply in the first half of 2022.
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DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your research before investing.
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