🔸 The lending market, similar to traditional financial markets, is governed by power laws, where a small number of players control a large portion of the market.
🔸 The entry of new competitors increases competition and innovation, which are likely to lead to faster development of superior products. This heightened competition benefits both application developers building on top of lending protocols, and consumers that interact with these applications.
🔸 Benqi's rapid growth in 2021 exemplifies the volatile nature of the DeFi lending market. Despite its initial surge, Benqi (in light purple above) has subsequently shrunk to a smaller role within the market. Further, all projects in the market face risks related to early-stage technology, something that was exemplified by the oracle bug on Euler (in brown above), which resulted in a significant drop in use overnight.
🔸 A notable development during Q1 was that both Spark and Morpho surpassed Compound in terms of outstanding loans.
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