Put assets to work with DeFi lending and borrowing.
In traditional finance, borrowing money often requires legal contracts and posting collateral. If you get a small loan just on the promise that you will pay back later, plus interest, you must post some amount of collateral in case you cannot pay this loan back.
In DeFi, collateral and liquidations (in the event you can’t repay the loan) are also present, usually specified in the smart contract code. There are methods for borrowing that require a range of amounts and types of collateral, from Bitcoin and Ethereum to altcoins and stablecoins. Some of the borrowing scenarios and contracts can be quite complex: for example, Anchor Protocol allows you to turn your Luna coins into bLuna and borrow UST against them. Some loans are incentivized by earning extra yield once you take them out. In the case of Alchemix, over time the yield from your deposited collateral can earn interest in order to pay back your loan for you, creating a “self-repaying loan.”
Earning interest on deposited funds in a bank is usually not enough to make up for the inflation of the dollar over time. Traditional savings accounts can’t compete with the APY of DeFi protocols that offer 6% or more in compounding interest yearly. Lending platforms like AAVE and Compound offer incentives to lenders so that they can continue to provide a place for people to borrow against their crypto.
New borrowing and lending solutions are developed all the time. THORChain plans to launch their own version of borrowing/lending, aka “THORFi” to provide cross-chain savings accounts, self-repaying loans with no liquidation, and other features via “Synthetics.” The best part about these opportunities is that they are open to everyone on the decentralized web, with equal access to anyone who has the need to borrow or wants to begin lending.