From banks to DeFi: the evolution of the lending market

The Internet of Value (IOV) with its distributed ledger technology (DLT) underpinning has created new forms of lending markets. As an integral part of the decentralised finance (DeFi) ecosystem, lending protocols are gaining tremendous traction, holding an aggregate liquidity supply of over $40 bill...

Full description

Saved in:
Bibliographic Details
Published inarXiv.org
Main Authors Xu, Jiahua, Vadgama, Nikhil
Format Paper Journal Article
LanguageEnglish
Published Ithaca Cornell University Library, arXiv.org 18.12.2022
Subjects
Computer Science - Computers and Society
Distributed ledger
Lending
Money markets
Quantitative Finance - Economics
Online AccessGet full text

Cover

More Information
Summary:The Internet of Value (IOV) with its distributed ledger technology (DLT) underpinning has created new forms of lending markets. As an integral part of the decentralised finance (DeFi) ecosystem, lending protocols are gaining tremendous traction, holding an aggregate liquidity supply of over $40 billion at the time of writing. In this paper, we enumerate the challenges of traditional money markets led by banks and lending platforms, and present advantageous characteristics of DeFi lending protocols that might help resolve deep-rooted issues in the conventional lending environment. With the examples of Maker, Compound and Aave, we describe in detail the mechanism of DeFi lending protocols. We discuss the persisting reliance of DeFi lending on the traditional financial system, and conclude with the outlook of the lending market in the IOV era.
ISSN:2331-8422
DOI:10.48550/arxiv.2104.00970