Borrowing Without Banks- DeFi Lending Guide

Decentralised News

Welcome to "Borrowing Without Banks: A Comprehensive Guide to DeFi Lending"! In this eye-opening video, we delve into the innovative world of Decentralized Finance (DeFi) lending, a groundbreaking system that has revolutionized traditional banking by eliminating intermediaries.

Transcript

00:00What's up guys, welcome back to the channel. In today's video I just want to answer a very

00:06prominent question I get from a lot of my viewers. Since I talk a lot about DeFi, people always ask

00:12me how does DeFi lending actually work? I break all these concepts down in my book DeFi Millionaire

00:19so always make sure you grab that free copy. The link is in the description but in this video I

00:25just want to give you an overview of what DeFi lending actually entails. So decentralized

00:32finance in general is revolutionizing traditional banking systems, removing intermediaries, providing

00:39financial services directly on the blockchain and one of the most important aspects of DeFi

00:44is this lending idea which allows you as an individual to be able to lend and borrow funds

00:49without the need to have financial institutions involved. So what is DeFi lending necessarily?

00:57It is actually just a practice of lending funds through decentralized platforms using smart

01:05contracts to automate the agreement between lenders and borrowers. So unlike traditional lending

01:10where banks act as intermediaries, DeFi lending is facilitated directly between the parties on

01:17the blockchain. So it works in a number of different ways. I'm just going to break down some of these

01:24smart contracts. So in DeFi lending it actually relies on smart contracts which are self-executing

01:31contracts effectively with terms that are actually written into code. So they manage the lending and

01:37repayment process enforcing the terms without any human interventions. You also have collateralization

01:45which is part of this whole sort of structure where in order for you to secure a loan as a borrower

01:52you usually have to provide collateral in the form of cryptocurrency and this collateral ensures that

02:00a lender is protected if you default. So you also have to think about DeFi lending interest rates.

02:07Okay, so the interest rates for DeFi loans also can be variable or fixed depending on the platforms

02:14that you're using. And they're often also determined by supply and demand mechanics and other platforms.

02:22They also add other specifications in order to sort of reach whatever level of interest rates that they

02:31are offering. And another essential part of this whole structure is liquidity pools where many DeFi

02:38lending platforms actually operate through these liquidity pools where lenders are providing funds

02:44to a shared pool and borrowers then borrow from that and then interest is earned and distributed among

02:50those lenders. So let's talk about some of the most popular DeFi lending platforms. So you have

02:56platforms such as Aave. So Aave offers flash loans that don't require collateral and they also have a lot

03:05of innovative features. You also have Compound which is one of my favorites. It allows you to earn interest

03:12on deposits and borrow against your collateral. You can also have lending platforms like MakerDAO which is

03:20behind the stable asset DAI. So this enables you as a user to pretty much generate DAI which is a stable

03:30coin by pretty much locking up your collateral. What are some of the advantages of DeFi lending you might be

03:38asking. First of all, obviously, this provides you accessibility with DeFi lending platforms. They're open to

03:45anyone with internet access cryptocurrencies. Pretty much more inclusive when you compare them to traditional assets like

03:54fiat currencies where you have to go through a whole bunch of traditional banking barriers in order for you to start

04:00investing. And DeFi also is very transparent. So all transactions are pretty much recorded on the

04:07blockchain. This provides a complete transparency to actually see what's going on within these lending

04:12markets. Also, just having the flexibility is a real advantage because as a user, you're able to choose the

04:19various lending products, different sort of interest rates as well in different terms depending on what's being

04:26offered by various competitors in the market. But of course, you want to know about what the risks and

04:31the challenges of DeFi lending are. There can be risks such as let's say smart contract failures where if

04:40there's a bug in the smart contract code, it could lead to you losing your funds or maybe you can have other

04:48risks such as collateral liquidations. So that means that if the value of the collateral actually falls

04:54dramatically, it might be liquidated, leading you to a loss if you're a borrower. And again, you know,

05:01the biggest one in the room is the regulatory uncertainty of these markets, the legal status

05:09of DeFi lending. It does vary by jurisdiction. So these changes can also impact different platforms.

05:17So what do I think is the future of DeFi lending? I think this market is going to continue to grow,

05:22attracting both individual institutional participants alike. And I think the innovations

05:28are really going to just keep on increasing and really bringing a lot more innovative utility

05:36and diverse sophisticated lending products as well. So the space is relatively young,

05:42it's still a little bit risky if you don't really understand what you're doing. But potential lenders

05:46and borrowers need to just pretty much understand the mechanisms, you know, assess all the risks,

05:52participate, you know, in platforms that you understand, they're well vetted, they've had smart

05:57contract code audits, etc. So it's a groundbreaking innovation. And I know a lot of you are really

06:04interested in why I always keep hammering on about DeFi, DeFi, DeFi. I think there are plenty of

06:10opportunities in this space for you to earn interest, especially in an environment like where we have

06:18high interest rates and high inflation, where it kind of like cancels itself out really. And a lot of

06:24you that are dealing in these traditional markets where you're depositing your assets in the traditional

06:30banks, really, at the end of the day, probably making losses, maybe some profits on a nominal basis.

06:36But when you really talk real terms, inflation adjusted, you see that you're making a lot of

06:42losses on your capital investments, or just holding your assets with these within these banks that

06:47offer even what seems to be high interest rates. Now, but you know, at the end of the day,

06:54DeFi lending has many, many significant advantages over traditional lending. But it does come with these

07:00other unique risks as well. So make sure you do your due diligence, understand the technology,

07:04the risk management, and you will definitely succeed. But before you really get started,

07:11it's really important for you to get to grips with all of the things that DeFi really entails.

07:17That's why I do recommend you check out the link in the description to DeFi Millionaire.

07:22It's a free download. So there's no excuse for you to not really get your knowledge up.

07:27Otherwise, guys, if you've got any other questions that, you know, relate to

07:31DeFi or anything really that is crypto related or stock market, Forex market related investing

07:37in general trading, make sure you leave a comment and I'll be able to look at some of your feedback

07:43and maybe do future content based on some of the concerns and some of the things that you guys want

07:49to learn. Don't forget to join our Telegram and our Discord server where, you know, we can stay in

07:54touch as a community. Don't forget to also check out the links to some of my favorite platforms.

07:59You know, I like trading and investing using decentralized exchanges, particularly GMX, GNS,

08:09Gains Network, MUX Protocol, Synfutures, Apex Protocol, etc. All the links are in the description.

08:16Other than that, guys, like, share, subscribe, turn on the notifications.

08:20I will be seeing you again in the next video. Peace and love.

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