Lending is an old business

very old

It is recorded in ancient Chinese books

Jewish history records

Red-capped businessman Hu Xueyan made his fortune from running a bank

Modern bankers make their fortunes with borrowing as leverage

An eerily similar financial history is happening in the cryptocurrency space

The Emergence and Prosperity of Centralized Lending

Revolutionizing Decentralized Lending

Who will be in charge of the next lending market revolution?

The essence of the lending business is "having cheap funds on the one hand and customers who need to borrow money on the other hand"

Whoever masters both masters finance

Calling wind and rain are resources

Look at the most powerful lending companies in the cryptocurrency circle according to the logic of "resources"

There is no doubt that it is a centralized lending company relying on a super large mining pool

• Behind PayPal is Coinin Pool

• Behind Cobo is the fish pond

• Behind Matrixport is Bitmain

These giants have grasped the most important borrowing demand of the currency circle, the borrowing demand of miners, and more importantly, the borrowing demand of BTC miners. BTC miners propped up the early lending market in the cryptocurrency circle.

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Compare the data

The collateral on the largest decentralized lending platform Compound is about 100 million US dollars (data source DeFipulse), and other decentralized lending platforms are not large.

The centralized lending platform PayPal alone claims to have more than 200 million US dollars in loans and 350 million US dollars in deposits last year. Foreign Nexos claims to accept more than 1 billion US dollars in loans. There are also many large platforms such as BlockFi, Cobo, Maxtrixprot , Celsius (PS: Centralized data is not so transparent) Judging from the data only, the decentralized lending market is far behind the centralized lending market, so why is there still a trend of DeFi?

In addition to the redefinition of trust mentioned above, DeFi, which carries the banner of open finance, aims to link the global capital market, and transfer cheap money from Americans, Japanese, and Europeans through cryptocurrency value flow The transfer advantages flow back to the borrowing needs of developing countries. In fact, developed countries can’t find better investment targets, hot money invests overseas, and cryptocurrencies open the door to capital flow. The benefits of DeFi open finance lie in

1. Strong scalability DeFi is an agreement. After business development, it has a global network effect. The lending business is no longer limited to one region, but a global market. Both borrowers and depositors can come to the world .

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back to reality

Deposits are created by borrowing

Because of the real business expansion needs, the borrower is willing to pay interest because of the interest,

The base of depositors willing to deposit the entire currency is enlarged, and the scale of the lending market is enlarged

The scale of borrowing depends on the total amount of collateral. In the traditional financial world, the value of collateral can be infinite, and the amount that can be lent is only evaluated according to each collateral.

However, the soil of the DeFi open finance lending market is quite barren, and the lack of collateral is an unavoidable problem. Miners who own Bitcoin cannot borrow money from Americans through DeFi. People who own other mainstream cryptocurrencies through DeFi. Can't borrow money from Europeans.

The fundamental reason is that open finance is built on Ethereum, and the best and most widely accepted collateral on it is Ethereum (market value 16.7 billion US dollars). The ceiling of collateral is very obvious, and the amount that can be borrowed is quite obvious. The scale of the lending market will not expand.

On the trend, more assets will enter Ethereum in the future. Once the total type of collateral is abundant and the value increases, more possibilities will grow in the soil of DeFi open finance.

More assets such as ERC20 BTC, gold token PAXG, direct issuance of bonds on the chain, and the introduction of various off-chain assets (the Makerdao team is working on it). The most direct of many assets is Bitcoin. Bitcoin has the actual demand for borrowing. The borrowing demand of Bitcoin miners is far greater than that of Ethereum miners. From the perspective of market value, Bitcoin as collateral is about 8 times that of Ethereum, and this is especially true from the perspective of future demand for mining machines (Ethereum is preparing to transform from PoW PoS, the expectation of miners is gone, there is no need to borrow money to add new equipment, and Bitcoin’s computing power competition has always existed)

ERC20 BTC is bound to be the next trend in the currency circle (PS: ERC20 BTC is to issue the original Bitcoin on the Bitcoin chain to Ethereum 1:1 by way of mapping). Let’s take a look at the existing ERC20 BTC

1. WBTC, the earliest ERC20 BTC solution, is led by Kyber and Bitgo, and the circulation volume in a year is only 600.

2. imBTC,In the past month, the imToken team has used the issuance method of escrow and mapping (similar to WBTC), coupled with the method of imBTC holding and earning interest as incentives, the current circulation is 120.

3. TBTC,V God is optimistic about the decentralized solution. BTC has changed from centralized custody to smart contract custody. There are two links in the issuance of TBTC, "deposit" and "issue after verification". Doing evil, and at the same time motivating verification nodes with part of the service fee, it is still in the experimental stage, and the main network has not yet been launched.

Other exceptions: ChainX's xBTC is built on the Polkadot ecosystem

The above centralized or decentralized ERC20 solutions are difficult to implement in the short term. There are incentive issues and trust issues. Without a catalyst for forced promotion, 100 BTC will not be able to stir up splashes, and neither will 1,000 BTC. 10,000, 20,000 BTC entering DeFi open finance may bring about different changes, more lending platforms are willing to access (with lending liquidity), and exchanges are willing to access (with trading liquidity) ), and more derivative financial products have liquidity.

The entry of 10,000 BTC can generate collateral assets worth 70 million U.S. dollars. Compared with the total number of BTC of 2,100, a 10-fold or 100-fold increase in the collateral of DeFi open finance can be expected.

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The advantage of giant players doing this is that

1. As the issuer of ERC20 assets, it can create demand for its trading pairs (defi loans, deposits, there will be demand). In the past, Bitfinex exchange had the liquidity that other exchanges did not have by being the issuer of USDT.

2. Strengthen its own ecology. For example, the exchange wants to develop its own public chain in the future and support its own DeFi system and stable currency. ERC20 BTC as a resource can attract more DeFi projects to build on its own ecology (PS: Binance’s BTCB is a way to strengthen its own ecology, but what Binance did not understand is that there is no complete DeFi ecology on the Binance Chain, and this cycle has not turned).

Once ERC20 BTC enters the market, it will also disturb the pattern of the BTC lending market

• In the past, only centralized lending was able to undertake the lending business of BTC miners. The decentralized lending market was troubled by the fact that BTC could not be used as collateral on the chain

• The centralized lending that entered the market early in the past has formed a scale effect (one-handed funds and one-handed miners), and it is very difficult for new entrants to compete. Now new entrants can find initial liquidity through the bottom-level access to the decentralized market. The decentralized lending market has Borrowers and depositors from all over the world, new entrants can rely on this to optimize their services to seize the market

• In the past, centralized lending relied on monopoly to achieve high profits, high borrowing rates and high deposit rates, and there was a lot of room for maneuvering. This time, the space can become the profit of the platform. In the future, the suppliers of funds will come from all over the world. The existing The profits of centralized lending platforms will continue to decline

PS: Centralized lending platforms in China are still facing compliance issues

The cooperation model between centralized lending and DeFi open finance depends on the respective business models of both parties

1. Dharma chose Compound (DeFi protocol) as the bottom layer. The Dharma team focuses on product services and traffic. In the future, it will also guide non-currency users to deposit and loan through fiat currency channels. In this way, Compound earns 2.5 million from borrowers. The interest rate difference is used as profit, while Dharma is looking for a cash-out model after having traffic.

2. An exchange chooseshttp://Lendf.Me(DeFi protocol) As the bottom layer, the exchange provides users with wealth management products to get stickiness, and also earns a part of the interest rate difference.http://Lendf.MeThe team's business model relies on making money through the ecological platform currency DF after the lending market grows bigger, (in the cooperation here becausehttp://Lendf.MeThe agreement does not make money from the lending market, so there is more room for cooperation with centralized institutions).

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other possible combinations

1. For some leveraged products on the exchange that use BTC or ETH as collateral, you can find cheaper funding sources in the decentralized world by pledging users BTC or ETH, and the exchange earns the intermediate interest difference. Take Huobi as an example of leverage The daily interest rate of the transaction is 0.098%, and the interest is calculated on an hourly basis. A simple calculation of the monthly borrowing cost is about 3%, and the decentralized lending agreementhttp://Lendf.MeThe interest on the loan last month was less than 1%, and there is room in the middle (PS: The premise is that the exchange does not inflate assets and lend users leveraged transactions, but really provides users with real assets, otherwise the exchange has no chance of cooperation).

2. Centralized lending companies are similar to the cooperation method mentioned above. Newly entered centralized lending companies can work together with the DeFi protocol team to make good products to serve miners, and strive to stimulate the demand for funds and borrowers, and in terms of profitability Centralized lending companies rely on earning spreads, DeFi teams likehttp://Lendf.MeRelying on the value of Token after the lending ecology is enlarged, so that there is no conflict of interest in the cooperation model, both parties can also share BD resources.

3. Decentralized wallets serve as traffic entrances, and DeFi is one of the few channels through which wallets can be cashed out (except for games). By building an intermediate layer on top of DeFi, decentralized wallets can provide users with Better services and a certain percentage of fees are charged to make profits. The actual lending behavior of users is in the underlying DeFi protocol.

The cooperation models mentioned above are all based on the mutual understanding between the two parties. The Compound team also mentioned that in the future, they will assist the exchange to establish a lending system, the operation mode of DeFi open finance, the method of generating interest, and finally how the centralized organization will package products. There are many possibilities and ideas in this.

Finally, looking at the trend brought by ERC20 BTC, the competition battlefield for on-chain assets in the future must be China, because China has gathered most of the BTC miners who can provide miners

1. Cheaper borrowing costs (via DeFi protocols)

2. Better service (centralized team service)

3. Higher trust (centralized or decentralized)

Then whoever has the opportunity to stand out in the next competition in the lending market

It is foreseeable that under the free flow of capital, borrowing will become cheaper and the deposit interest will be lower and lower