Z2O - Undercollateralized Lending
Zero-to-One (Z2O) Series
Given the decentralization and transparency benefits of blockchains, many have pointed to DeFi as crypto’s ‘killer use case.’ After all, finance today is built along opaque and slower traditional finance rails ripe for disruption by distributed ledger technology. Sobering up from the highs of the bull market of ‘21, however, DeFi advocates are now left wondering: ‘How much of the original vision did the space end up building?’
Zero-to-One (Z2O) is a research series on the verticals we deem imperative to onboard the next wave of DeFi users. While overcollateralized lending constituted half of DeFi’s $300b in TVL last year, it has fallen dearly short of its initial promise - providing the unbanked with permissionless access to financial services. The first part of the series dives deep into undercollateralized lending, an elusive product in the on-chain world. We examine current undercollateralized products, how they bridge the ‘trust gap,’ and the design tradeoffs they incur in the process.
Introduction to Undercollateralized Lending
Borrowers who take undercollateralized loans pledge assets whose value is lower than the loan amount. On the other hand, uncollateralized loans are loans with no...Unlock this article by joining our Community!
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