How much do you know about the DeFi lending model: Unsecured loans are still available, empty-handed?

Editor's Note: This article comes fromChatting with Xiaozha (ID: xiaonazha88), reprinted by Odaily with authorization.

Editor's Note: This article comes from

Chatting with Xiaozha (ID: xiaonazha88)

Chatting with Xiaozha (ID: xiaonazha88)

, reprinted by Odaily with authorization.

Before the birth of DeFi, Fintech (financial technology), Internet finance, and blockchain finance, which are served by the financial industry, have also been developing vigorously. The comparison between them is shown in the figure below.

1. Mortgage loan

2. Decentralized Exchange Tokens

3. Derivatives

1. Mortgage loan

2. Decentralized Exchange Tokens

3. Derivatives

Among them, the decentralized encrypted asset mortgage lending platform is the cornerstone application type of DeFi. DeFi migrated the traditional lending model to the chain, and also created unsecured flash loans, let us take a look together.

1. DeFi mortgage lending products, 8 applications on 3 platforms

Projects that issue coins: Maker(MKR), Compound(COMP), Aave(Lend)

According to dapp.review data, there are 8 DeFi mortgage lending products, as shown below:

DeFi mortgage lending projects on ETH can be classified as follows according to whether they have issued coins:

Projects that issue coins: Maker(MKR), Compound(COMP), Aave(Lend)

Coinless projects: Nuo network, DHarma, lendf.me

Here comes the question, why use decentralized mortgage lending like DeFi?

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2. Advantages and disadvantages of DeFi mortgage lending

Why use DeFi to mortgage loans? The following is a comparison of the user's motivation and the advantages and disadvantages of DeFi lending.

1. For lenders: they can short an asset or borrow the right to use it;

1. Advantages

2. For borrowers: they can use their own assets to obtain interest.

Of course, there are cross-platform arbitrage opportunities between different DeFi lending platforms.

1. Advantages

2. Disadvantages

Transparency and price efficiency, as prices are influenced by market demand;

Convenience and speed when borrowing and lending occurs;

2. Disadvantages

Technical risk, counterparty risk is replaced by smart contract risk.

With low liquidity, it is difficult to borrow on a large scale without affecting the current interest rate level.

Generally speaking, DeFi has not been developed for a long time, and the security of the code has yet to be tested.

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3. DeFi mortgage lending, 4 lending models, flash loan is the most eye-catching

Speaking of the advantages and disadvantages of DeFi over traditional financial products, what are the specifics?

Let's start with the four products of Maker, Aave, Compound and Dharma, and take a look at the four lending models under the DeFi model.

1. Maker DAO, a stable currency model, only lends but not borrows

Maker DAO is the first batch of DeFi products in the DApp ecosystem on Ethereum. Almost all major DeFi applications on Ethereum use DAI, occupying an important position in DeFi.

Maker DAO, like a pawn shop, allows users to borrow DAI, a dollar-pegged stablecoin, directly by depositing ETH, which initially requires a collateral ratio higher than 150%. This is like mortgaging a watch worth 150 yuan to a pawnshop, and the pawnshop will give you 100 yuan in cash.

In MakerDAO, there are no lenders, only borrowers. Have you ever seen a pawn shop that can borrow money?

2. Compound, liquidity pool transaction mode, deposit and withdraw at any time

Compound, just like a traditional bank, gathers borrowers' funds in a liquid fund pool and transfers funds to lenders, balances supply and demand through algorithms, and sets interest rates.

This is like, we go to the bank to deposit money, and the bank lends money to people who get the money. Therefore, in Compound, users can withdraw the principal and interest at any time.

For lenders, borrowing money from Compound requires over-mortgaging token assets to obtain a loan line, and lending other tokens, such as mortgage ETH to borrow USDT.

How are the interest rates on loans and borrowings determined? This is determined by the liquidity size of the pool, which fluctuates by the ratio between the total amount of money offered by lenders and the total amount demanded by borrowers.

Recently, Compound launched lending as mining. Compound’s liquidity pool has doubled, and the effect of attracting gold is obvious.

3. Dharma, P2P matching mode, cannot borrow and return at any time

Dharma is a peer-to-peer protocol that matches borrowers and lenders.

In Dharma, the smart contract acts as a "guarantor" to evaluate the asset price and risk of the borrower. The borrower decides whether to lend to the lender based on the evaluation results provided by the “guarantor”. When the lender fails to repay the loan on time, the “guarantor” automatically executes the liquidation procedure.

The loan period on the Dharma platform is up to 90 days, and the loan interest is fixed. Lenders lock up funds for the duration of the loan and only start earning interest once they are matched with a borrower.

Dharma's lending rate setting is equal, which is in stark contrast to Compound.

4. Aave, unsecured loans, a highlight of flash loans

Among the Aave mortgage loans, the most eye-catching one is Flash loan (flash loan). Flash loan allows developers to borrow without any capital collateral, that is, let you with technology, you can be a white wolf with nothing.

Therefore, flash loans are mainly used for arbitrage, and flash loans can also be used to repay arrears to avoid liquidation penalties.

Flash Loan is an unsecured loan based on code execution. Its implementation principle is: use the compilability of smart contracts to program all steps such as borrowing, usage, and repayment into one transaction. Smart contracts can ensure that all these steps are executed within 15 seconds. If the repayment fails, the entire transaction will not be executed.

The lender in the flash loan can write 20 or 30 operations in one transaction, and the smart contract can execute it, which means that the steps of borrowing, using, repaying, etc. can be programmed into one Smart contract transactions, the whole process does not exceed 10 seconds.

The advantage of concentrating all operations in one transaction in this way is that if the loan is not repaid in the end, the transaction will fail, avoiding the phenomenon of borrowing money and not repaying it.

Therefore, users of flash loans are not ordinary users, but developers, market makers, etc., a tool that facilitates their quick arbitrage between DeFi platforms and exchanges.

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4. Four levels of mortgage lending

Having said so many loan models, we can summarize several levels of lending:

1. For credit loans, first evaluate your ability to pay back, so if you borrow money, such as a credit card, the risk is that if the borrowed money is not repaid, it is easy to go bad.