Decentralized Leverage, Baby
Debt. Arguably one of the most controversial financial terms in modern history. Embroiled in the conversations of 45 million student debt holders, 55% of Americans who carry a month-to-month credit card balance, and the mortgage holders that account for 70% of all American debt. Use too much and risk defaulting, use too little and miss out on opportunities due to temporary illiquidity. Even nation-states use debt to boost productivity - global debt rose 28% to $226 trillion in 2020, constituting 256% of global GDP.
Historically, borrowing from conventional banking institutions has come with restrictions such as having a good credit score and sufficient collateral to convince them that a given debtor is credit-worthy. Decentralized lending and borrowing remove this barrier, effectively allowing anyone to collateralize their digital assets to obtain loans without the need for a bank account or a credit check.
For the risk-averse, lending assets on these platforms can also generate additional yield driven by borrowing demand. Relative to yield farming covered in the previous issue, this source of yield is superior as it is derived from organic demand instead of token inflation.
The Mechanics
To illustrate fund flow mechanics in a decentralized money market, we exa...Reports you may have missed
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