LONDON (Reuters) – It sounds like a surefire bet. You lend money to a borrower who puts up collateral that exceeds the size of the loan, and then you earn interest of about 20%.
What could possibly go wrong?
That’s the proposition presented by “DeFi”, or decentralised finance, peer-to-peer cryptocurrency platforms that allow lenders and borrowers to transact without the traditional gatekeepers of loans: banks.
And it has exploded during the COVID-19 crisis.
Loans on such platforms have risen more than seven-fold since March to $3.7 billion, according to industry site DeFi Pulse, as investors hunt returns at a time when central banks across the world have slashed interest rates to prop up economies battered by the pandemic.
Proponents say DeFi sites, which run on open-source code with algorithms that set rates in real-time based on supply and demand, represent the future of financial services, providing a cheaper, more efficient and accessible way for people and companies to access and offer credit.
But with the promise of high rewards comes high risk.
Continue reading… “Boom or bust? Welcome to the freewheeling world of crypto lending”
