Liquidity issues raise questions for DeFi

The latest news about potential liquidity issues at home-grown DeFi lender Maple brings market issues closer to home. With Maple’s exposure to Babel, a DeFi lender who halted withdrawals due its exposure to 3AC and Celsius, it’s natural to wonder about the overall survival of crypto lending markets.

Maple’s issues appear to be solvable though, with an Orthogonal loan of $10m alleviating pressure in the short term and borrowers appearing to have little exposure to 3AC and Celsius according to CoinGape, meaning that lenders are less likely to face issues as loans mature. Additionally, Maple advised they cannot unilaterally freeze withdrawals which should offer comfort to those who saw issues with the Celsius CeFi type approach to handling a liquidity crunch.

Whilst Maple might be out of the woods for now, questions remain for uncollateralized lenders and the overall state of DeFi markets as many wonder just how much contagion is out there. It should not be unexpected to think that we’ll see others face a liquidity crunch over the coming days and weeks and with crypto under the spotlight as withdrawals are halted and accounts can get taken over (with democratic votes ironically).

On a brighter note, the transparent nature of crypto is being put into action during this time and whilst the headlines may scare DeFi users, at least lenders like Maple provide a way to look under the hood and see all the loans they’ve ever issued here — https://app.maple.finance. Users can go in and choose from one of the lending pools and see all the active and mature loans, who they’re for and for how much. You’d be hard pressed to get real-time access like this in TradFi. So despite the immaturity of the crypto markets, at least it’s got that.

Right now, there’s still a lot of questions and how these protocols act over this time will play an outsized role in the plans to make DeFi/crypto more mainstream.