What Is DeFi Borrowing?

DeFi borrowing is taking out a loan without dealing with traditional banks or financial institutions. Everything runs on blockchain technology, which means it’s powered by smart contracts rather than humans or middlemen. What is DeFi borrowing? The whole idea is built around transparency and accessibility. You don’t need a credit check or some long-winded approval process. Rich people and whales won’t get a better interest rate than retail investors and small users. How much you can borrow depends on how much you lend on the other side and what kind of tokens you choose to lend. Borrowing against stablecoins will sometimes allow for a higher LTV than volatiles like ETH and BTC.

One of the key perks is that anyone with an internet connection can access it, making borrowing easier for people who might not qualify for loans through traditional means. But don’t get too excited. DeFi borrowing can be a bit risky. Crypto prices can be volatile, which might lead to liquidating your collateral if values drop too much. Interest rates on these platforms can also shift around, so it’s not always easy to calculate the total cost of your loan upfront.

Popular platforms like Aave, Compound, and MakerDAO offer different ways to borrow, often with various supported cryptocurrencies and features. DeFi borrowing is part of a growing movement to decentralize financial systems, but it’s still evolving and not without its flaws. It’s freedom with a side of unpredictability.