Yesterday the Bank for International Settlements (BIS) published a bulletin on DeFi lending. On the one hand, it describes it as a “self-referential system fuelled by speculation.” However, it also recognizes the innovation it brings in terms of automating underwriting with smart contracts and composability.
That composability or so-called money legos enables customized financial products and is powerful for trade finance.
The bulletin authors have two major criticisms of DeFi lending: borrowers are anonymous, and the collateral is all cryptocurrencies. Collateral is required because of anonymity which means people who don’t have assets would also lack access to lending facilities which is not good for financial inclusion.
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