The Crypto Loan Economy

Meme on undercollateralized lending in DeFi. Pepe ninja turtles breaking the chains originating from banks tying common people.
Value of the global lending market in 2021 and estimation for 2025, based on a CAGR of 6%. 2021: $6,932.29 billion, 2025: $8,809.55 billion.
Forecast on Global Lending Markets Source: Research and Markets
Histogram graph showing the predicted value of global peer to peer lending from 2021 to 2025. 2012: $1.2 billion, 2013: $3.5 billion, 2014: $9 billion, 2015: $64 billion, 2025: $1 trillion
Source: Statista

TradFi or DeFi?

Beginnings of Lending in DeFi

Risk Assessment Methods

Comparative analysis of different risk assessment methods used by undercollateralized lending protocols. The methods include: Pool delegates, Community Vote, Third party risk assessment, and Smart Contracts.
Analysis of Different Risk Assessment Methods

Pool Delegation: Maple Finance, DebtDAO (Yet to Release)

Maple Finance’s credit approval system, relying on Pool Delegates that stake MPL to approve borrower’s loan requests.
Maple Finance’s Engine

Community Vote: TrueFi

TrueFi’s credit approval system, relying on Tru stakers for community governance votes to approve borrower’s requests.
TrueFi’s Engine

Third-party Outside Organization: Clearpool, Goldfinch

Predetermined Smart Contracts: Gearbox

Gearbox protocol’s credit accounts, which act as the predetermined smart contracts to allow for permissionless borrowing.
Gearbox Protocol’s Engine

Off-Chain Integration: Teller

First-Loss Capital

Stakers as First-loss: Maple Finance, TrueFi, Goldfinch

Goldfinch Finance’s Architecture Diagram illustrating the dynamics between Lenders and Borrowers w.r.t Junior and Senior Pools and Tranches.
The Borrower-Lender Dynamic on Goldfinch Finance Source: Goldfinch

Insurance Pool as First Loss: Clearpool

Spigot Function: DebtDAO

Comparative chart, showing the pros and cons of the three main first loss capital methods implemented by undercollateralized lending protocols; Staking, Insurance Pool, and Spigot Funciton. Evaluated based on if the method aligns incentives with liquidity providers, allows for instant repayment, provides the potential to always recoup 100% of the investment, and if the method is executed automatically by smart contracts.
Analysis of Various First-Loss Capital Methods

Tokens Available for Loans and Pool Risk Variety

Comparative chart showing the assets available for loans provided by undercollateralized lending protocols. Assets available include: USDC, USDT, TUSD, WBTC, and WETH.
Analysis of Different Assets Available as Loan on Different Protocols

Potential Limits for Undercollateralized Loans in DeFi

What do the Numbers Say?

Comparison of total loans originated, total outstanding debt, net interest accrued from borrowers and treasury or protocol’s revenue w.r.t various undercollateralized lending protocols.
Source: Dune Analytics for Maple, Goldfinch and TrueFi; Goldfinch’s Dashboard; Clearpool’s Dashboard
Comparison of various undercollateralized lending protocols w.r.t their different parameters.
Source: Dune Analytics for Maple, Goldfinch and TrueFi; Goldfinch’s Dashboard; Clearpool’s Dashboard
Data from Coingecko.com on token performances of UC lending protocols
Source: Coingecko

An Optimistic Future

French Revolution: Revolutionaries in Paris stormed the Bastille, a symbol of the oppressive monarchy, on July 14th 1789. Picture: Time.com

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