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Currently, the main form of competition in DeFi lending exists in terms of interest rates offered and liquidity provided. In the short run this reality creates a system driven by misaligned incentives. In the long run, competition centered on pricing will have the undesired effect of becoming a race to the bottom. DeFi lending platforms should begin building competitive moats now, not only to create more platform stability within the current system but, more importantly, to be better positioned to capture new market share and sustained success into the future.

DeFi Lending Overview

By providing on-demand liquidity (usually in the form of dollar-pegged stablecoins) to borrowers willing to over-collateralize their assets (usually cryptocurrency), lending solves a major crypto pain point. Namely, crypto holders can gain short-term liquidity without having to fully liquidate an asset that could appreciate meaningfully in the future. On the other end, DeFi lending offers variable interest rates to lenders that far outweigh rates provided by traditional banks — often by 2x — 8x or more — in exchange for bearing greater risk. These risks include protocol, smart contract, liquidity, and asset price volatility risk. …


Matt McGee

Berkeley Haas MBA, Blockchain at Berkeley Alum, Former EY M&A

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