6th June 2019 – Binance Research, the market analysis arm of global cryptocurrency exchange, Binance, has released the first research report on a new series analysing decentralised finance, also known as DeFi or Open Finance, which has grown to become one of the main applications of the Ethereum blockchain.
Throughout the series, Binance Research will provide insights on one of the most compelling use cases for blockchain technology, and the first report in the series specifically focuses on the field of decentralised cryptoasset lending and borrowing.
“While the Open Finance initiative is, by nature, platform-agnostic, DeFi applications are almost exclusively being developed and used on Ethereum,” Binance Research pointed out in the report titled DeFi Series #1 – Decentralised Cryptoasset Lending & Borrowing.
According to Binance Research, decentralised finance protocols, or DeFi applications, offer several promising advantages over traditional financial products, such as:
Transparency and price efficiency as prices are subject to market demand.
Ease of access and speed when borrowing/lending capital.
Censorship resistance and immutability.
Nonetheless, the report notes that the experimental nature of these financial primitives translate to specific disadvantages, such as:
Technology risk (smart contract risk replaces counterparty risk).
Low liquidity (limits to borrowing and lending at current interest rate without materially affecting the equilibrium interest rates).
“Overall, the crypto-powered lending space is still nascent, but offers a compelling value proposition whereby individuals and institutions can move past outdated credit models to provide broader access to capital without the need for a trusted intermediary,” Binance Research comments.