The DeFi project with the simplest and most scalable business logic is the lending agreement. This article attempts to analyze the investment value of this type of agreement, using compound as a representative.
Drivers of success for lending agreements
The driving force behind the growth of this type of lending agreement, Compound, is the particularly strong demand for lending in the industry. There is so much demand for leverage in the cryptocurrency world.
But a little more granular is the high demand for stablecoin borrowing in the industry.
The key to the success of lending agreements is the ability to provide stable, high volume, low-interest stablecoin borrowing.
The huge advantages of the Defi lending agreement
The lending agreement subsidizes a portion of the interest through liquidity mining.
It also further reduces the interest rate by the design that the collateral is also a deposit and can earn interest. This doesn’t exist in traditional banks, which is something unique to the cryptocurrency world.
The decentralized design allows asset security to be addressed without some centralized institution to do evil and run away. This is also a huge advantage of the defi lending protocol.
The lending protocol, unlike the swap protocol, is a low-frequency usage scenario, so it is not as dependent on low miner fees. The lending protocol does not require as much scalability for the blockchain. This is why lending protocols on bsc and heco chains put much less pressure on the comp compared to swap. Think about the pressure of pancake and mdex on uniswap. That’s why lending protocols are scalable because there is not a strong dependence on the scalability of the underlying chain.
Room for lending protocols to grow
In the defi vs cex competition, the lending protocol has the best chance of fully suppressing the centralized lending business. swap business basically has more advantages than cex.
So the room for the development of the lending agreement can be imagined as the lending cap of cex.
The advantage of cex is left to have more coins fully collateralized, while in defi lending agreements, the collateral selection is very narrow because of the imperfect cross-chain mechanism.
Another imagination is how much collateral will eventually be locked into the lending agreement. Currently the most effective collateral is only wbtc and eth, but with defi building blocks, uniswap’s Lptoken can also be used as collateral, and the collateral cap can be further leveraged to increase.
The industry grows upwards, the market value of collateral rises, and the space for the development of lending agreements will be further enlarged. So it can be judged that defi lending agreement tokens are capable of capturing the dividends of the overall industry development.
The development of swap protocols will further drive the development of lending protocols. The bottleneck limiting the development of swap is the scalability of the chain, or the miner’s fee. Current advances in L2 technology are expected to address this. And the expansion of the swap market will see further development of lending protocols when leveraged trading takes off.
At the same time, financial defi also has a strong reliance on lending agreements. It can be said that the lending agreement is the bottom of the defi protocol and the one that captures the most dividends of the industry development.
Lending agreement token investment analysis
With the above analysis, I think the lending protocol is capable of capturing the dividends of the industry development.
If the cross-chain mechanism is further developed, the investment value of the Lending Protocol token will be further expanded. Lending Protocol will put a huge pressure on the lending market of cex.
The most critical factor for the success of a lending agreement project is the amount of stablecoin deposits. To judge whether a lending agreement token is investable, I think the most critical factor is whether the project owner has the ability to obtain a business alliance with a strong stablecoin supplier.
I feel that currently only compound has this awareness, and compound and makerdao have formed a tie-up on the agreement. I also have a feeling that (I’m guessing) Compound and usdt have formed a strategic partnership, otherwise how can we explain the huge amount of usdt deposits in Compound?
I’ve tried the lending agreements on bsc and heco and overall I don’t feel they have the ability to tie up a large stablecoin provider. busd and husd have high interest rates on both bsc and heco borrowings.
Finally, I think centralized exchanges or lending platforms, both should dry a lending agreement on ethereum, combined with their own platform’s asset cross-chain capabilities, can effectively block compound from encroaching on the lending market. It doesn’t make much sense to do it on your own published chain.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/defi-lending-agreement-investment-value-analysis/
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