Crypto Lending Teeters Near Extinction After Genesis Collapse
Comment of the Day

January 20 2023

Commentary by Eoin Treacy

Crypto Lending Teeters Near Extinction After Genesis Collapse

This article from Bloomberg may be of interest. Here is a section: 

Being in the SEC’s cross hairs is likely to lead to a further shake-up of what little is left of the lending sector. 

“There will be two different models in the future,” said Campbell Harvey, a finance professor at Duke University. “First, certain organizations will register with the SEC and sell these products as securities. Second, investors may do this on their own by putting their crypto into decentralized liquidity pools and earning a fee for that.”

In decentralized finance, or DeFi, investors use software to automatically borrow and lend tokens, with positions being automatically liquidated if prices fall too low or they miss repayment deadlines. Some platforms such as Maple Finance organize pools where an operator can manage incoming investor funds and choose who to lend them out to, using due diligence to assess a borrower’s creditworthiness rather than asking for collateral. Such an approach has already lead to some defaults during the current crisis, in addition to plummeting volumes.

Because these types of loans are conducted on public blockchains, the collapse in lending is more visible. The total amount of value locked on DeFi networks hit a peak of $181 billion in early December, according to data from DeFiLlama, and now sits at around $45 billion — tarnished by wavering demand, declining crypto prices and several spectacular failures.

Eoin Treacy's view

The next bitcoin halvening is due in April 2024. That will halve the reward for successful minting a new block from 6.25 to 3.125. Therefore the limited supply and rarity of the asset will become a topic of conversation again around this time next year. 

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