In this article, we will explore the top ten (10) best DeFi lending platforms without collateral.
What is a DeFi Platform?
Decentralized Finance, known as DeFi, is a blockchain-based form of Finance that does not depend on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments.
Instead, it utilizes smart contracts on blockchains, the most common being Ethereum. DeFi platforms permit people to lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts.
DeFi uses a layered architecture and highly composable building blocks. Some DeFi applications promote high-interest rates but are subject to increased risk.
By October 2020, over $11 billion (worth in cryptocurrency) was deposited in various decentralized finance protocols, representing more than a tenfold growth in 2020. As of January 2021, approximately $20.5 billion was invested in DeFi.
Understanding DeFi Lending Protocols
The fundamental value of crypto assets may increase or decrease, but doing nothing in wallets doesn’t ensure any interest. Just holding a specific cryptocurrency won’t make any earning.
DeFi loans allow users to lend their crypto to someone else and earn interest on the loan. Banks have been using this service to the fullest. In the world of DeFi, anybody can become a loaner.
A loaner can lend their assets to others and will be able to develop interest on that loan. This procedure can be done through the loan offices of traditional banks.
There are different ways to distribute interests to investors; hence it is worth investing some time to research to know your interest type.
Users can pool their assets and diffuse them to borrowers using smart contracts. It also goes for borrowers, as each pool will have various approaches on how to borrow.
When getting a loan, the borrower needs to give something more important than the loan amount. When taking a loan from a bank, collateral is required associated with that loan.
Intelligent contracts are to deposit this currency of at least some value to the loan amount. Collaterals are available in vast differences; you can use any crypto token or coin to exchange borrowed cryptocurrency.
The Aave lending protocol launched a new feature called Credit Delegation. This feature permits users to offer peer-to-peer loans with no collateral needed.
Stani Kulechov, the CEO of Aave, explained how the system would work. The Credit Delegation feature is on peers to enter into agreements with each other that permit borrowers to use the lender’s credit line.
The two individuals will enter into a formal legal agreement that would define terms such as repayment schedule, interest, and other necessary conditions. Through integration with OpenLaw, a project to create legal contracts recorded on a blockchain, these terms can be formalized on-chain.
Using peer-to-peer intermediaries allows circumventing limitations inherent to DeFi, where the protocol cannot recover a borrower’s loan outside the blockchain.
The intermediary takes ownership of the insolvency damages for the borrower, as the protocol can access their collateral. It is up to the intermediary to recover the loan through other means.
Given the higher risk, the intermediary receives a higher interest rate from the borrower.
Top 10 Best DeFi Lending Platforms in 2022
Aave is one of the original DeFi lending protocols. It gives users a decentralized liquidity platform, linking lenders searching for passive income with borrowers looking for crypto.
Positioning itself as a straight competitor to Ethereum, Avalanche is one of the best DeFi lending platforms, a layer one blockchain used to create Dapps, NFTs, and other custom blockchains.
Cardano (ADA) is another DeFi lending platform worth keeping an eye on for two reasons. First, it is one of the world’s most prominent blockchains, with a current market cap reaching US$70 billion.
Secondly, Cardano earns notoriety as one of the greenest blockchain projects, which is significant when other blockchains are criticized for their massive energy consumption.
Chainlink is another best DeFi lending platform that acts as a bridge, connecting blockchain-based smart contracts with reliable off-chain data sources.
Chainlink recently launched a new Cross-Chain Interoperability Protocol (CCIP), enabling better cross-chain development and communication.
Uniswap is one of the biggest decentralized lending platforms and a leader in the DeFi ecosystem.
Unlike traditional exchanges, Uniswap eases peer-to-peer transactions through automated market makers and liquidity pools.
Polkadot is like the internet for blockchain. It gives independent blockchains to interact and share information in a trust-free environment through the Polkadot relay chain.
Polkadot has appeared as a next-generation DeFi platform targeting to address some of the problems, namely speed, and scalability, that have challenged its rival Ethereum.
Terra Luna (LUNA)
Terra Luna brings many unique features to the DeFi ecosystem by bringing programmable money to the internet. Terra Luna combines DeFi and fiat-pegged stable coins permitting users to conduct cross-border payments effortlessly and with fewer fees than other digital payment systems.
Terra offers a wide range of stable coins from TerraUSD to TerraEUR, while the LUNA operates as the backbone that keeps stable coin prices.
Polygon (MATIC) is not reinventing the wheel, but it is the fastest-growing Ethereum layer two scaling and Dapp solution. With most Dapps still built on Ethereum, addressing speed and cost issues on the blockchain will gain the entire DeFi ecosystem.
Solana (SOL) is another DeFi lending platform that utilizes proof of history – instead of evidence of work of stake consensus mechanism. This POH permits transactions to be validated with a valid timestamp rather than requiring staking or mining on the platform.
The solution’s lightning-fast speeds and low costs have given Solana a lot of interest in the DeFi market.
Watch the video below to know more about the top ten (10) best DeFi lending platforms:
Synthetix (SNX) is another DeFi lending protocols liquidity pool that brings crypto holders with its vast synthetic assets trading in derivatives, along with currencies, commodities, and stocks.
Users can select from existing mint their own using the platform’s unique synth builder feature. The ability to achieve exposure to an unlimited range of assets without holding them makes Synthetix one of the hottest DeFi products around.