What Is DeFi Lending And Which Providers Are There?


The world of decentralized finance has been heating up over the past few months. It is a fascinating market segment for users who want to explore DeFi lending and borrowing, among other things. Comparing MakerDAO to The Standard, both projects hold tremendous potential to disrupt the financial sector. 

Why DeFi Lending Matters

The current financial system everyone uses is broken and has created an inequality gap in numerous regions. Overcoming the shortcomings in that industry is crucial, yet innovation will not always happen from within. By developing competing solutions removing all the intermediaries from the equation, we can create a fairer and more accessible financial ecosystem. Thanks to the evolution of blockchain technology and smart contracts, one can achieve many great things without human intervention. 

Decentralized lending and borrowing are two examples of how blockchain technology can transform the financial industry. As anyone in the world can access these applications regardless of location and without requiring official “approval”, there is a wide market to explore. In addition, DeFi lending creates opportunities for crypto asset holders looking to generate passive revenue on their holdings through interest fees. More importantly, the lender doesn’t need to share private keys with anyone, allowing them to retain control.

Finding the right service provider for decentralized lending and borrowing is an essential step. Different platforms provide exposure to this feature, although they all have their own implementations and rules to contend with. The use of algorithmic stablecoins in this industry has become very outspoken, creating a different way of maintaining a ‘stable” currency without opting for physical fiat currency reserves. 

DeFi Lending With Maker DAO

As an Ethereum-based protocol issuing the DAI stablecoin and providing collateral-backed loans, Maker DAO has proven to be a successful project. The removal of intermediaries is beneficial to all users, as access to financial resources should not come with strings attached or other drawbacks. Allowing anyone with collateral to acquire a loan for whichever purpose they need is how financial equality is achieved.

The choice for the DAI stablecoin is a bit unique, however. It is not the most popular asset pegged to the US Dollar, yet it is native to the Ethereum ecosystem. Moreover, it is not backed by financial reserves in the traditional sense. Instead, its soft-peg to the US Dollar is algorithmic in nature as its backing comes from Ethereum-based assets, making it more useful for issuing loans. Finally, as no one controls the issuance of the DAI currency, MKR token holders are empowered as they can govern the protocol through the Maker DAO. 

Maker also makes use of collateral vaults or collateralized debt positions. Every vault is an Ethereum-based smart contract that holds collateral in escrow until the borrowed DAI amount has been repaid. These contracts are autonomous and do not require any intermediaries to approve or sign off on anything. For users contributing assets, it is essential to remember the collateral’s value must surpass the DAI value. This may seem like a disadvantage, yet it allows for collateralizing more volatile assets. Thanks to a built-in mechanism, the project will liquidate collateral automatically if market volatility ensues.

At its core, the creation of the DAI stablecoin and how it is backed by collateral is a rather intriguing concept. It is different from using the traditional approach of issuing stablecoins. Unfortunately, it is another stablecoin focused on the US Dollar, despite there being many other exciting markets to explore. This is where The Standard is different from Maker, as it aims to target. Tapping into the different financial segments is essential for any project that wants to help take decentralized finance to the next level.

The Standard is Very Different

At its core, The Standard issues an algorithmic stablecoin, similar to Maker DAO. However, it is an asset soft-pegged to the Euro while backed by fungible assets. To generate the Standard-Euro or sEUR, users can leverage multiple fungible assets as collateral in a smart contract. As such, they can effectively spend the value of their stored assets without users having to sell their assets.  Furthermore, sEUR is the first gold-backed stablecoin pegged to the Euro, marking an essential milestone for the DeFi lending industry.

As is courtesy in the decentralized industry, The Standard is an open lending protocol where token holders can participate in its governance system. Voting pertains to stability fee rates, new features, and even hard Asset Custodians’ due diligence and onboarding requirements. By maintaining a Decentralized Autonomous organization – DAO – structure, Standard Token holders can weigh in on key decisions through a smart voting mechanism and prediction markets. Empowering the community to govern this new project will ensure fairness and transparency for all parties involved. 

Community members can access these features by holding The Standard Token, or TST. Users can acquire this token during the token sale or via secondary exchanges once the trading goes live shortly. 

The Issue The Standard Solves

For the longest time, there have been attempts in the cryptocurrency space to create a new breed of stablecoin. Instead of relying on federal reserve-issued currency as collateral- such as Tether and USDC – The Standard wants to address the problems this approach entails. Bank accounts tied to cryptocurrency ventures can be closed or frozen. An issuing company can go bankrupt, and the created stablecoin is still subject to inflation. That is a serious threat to DeFi lending.

By tokenizing gold bullion, some of these issues have been resolved. Unlike fiat currency, bullion can be fully insured and audited more easily. It also has the same fungibility as fiat currencies, making it a good fit. Sadly, society has no idea how to price goods or services in gold, making this approach less feasible. Bringing the gap between these two approaches is essential to create the next generation of stablecoin.

While governments worldwide have abolished the gold standard, the time has come to introduce it again. A decentralized new-age gold standard without centralized authority, or The Standard Protocol, will grant rare asset holders a chance to generate stablecoins by borrowing against their current holdings. With trillions of Euros in precious metals and cryptocurrencies, The Standard Protocol taps into the biggest liquidity pool no one has successfully explored.

The Standard Euro – or sEUR – is the first algorithmic stable coin to be created via The Standard Protocol. The team will introduce support for the US Dollar, GB Pound, and Indian Rupee in a later stage. Protecting consumers’ savings against inflation and leveraging the devaluation of these fiat currencies is paramount in the current financial ecosystem. 

Closing Thoughts

The growth of decentralized finance has attracted many new ideas that will prove worthwhile to explore. What The Standard does is very different from any other service provider in this space today. It combines the best of traditional finance, precious metals, and blockchain technology into a compelling offering capable of tackling a multi-trillion euro market.

Advancing the decentralized finance industry and making it more appealing to the mainstream are two crucial objectives. Overcoming these hurdles will not be easy, yet the sEUR initiative holds a lot of promise. Moreover, it shows the competitive nature of DeFi lending and what can be achieved by exploring slightly different routes. 

The post What Is DeFi Lending And Which Providers Are There? appeared first on Vaultoro.

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