Binance Research, the market analysis arm of global cryptocurrency exchange, Binance, has released the first research report on a new series analyzing Decentralized Finance, also known as DeFi or Open Finance, which has grown to become one of the main applications of the Ethereum blockchain. Throughout the DeFi Series, Binance Research will provide insights on one of the most compelling use cases for blockchain technology, and the first report in the series specifically focuses on the field of decentralized cryptoasset lending and borrowing.
“While the Open Finance initiative is, by nature, platform-agnostic, DeFi applications are almost exclusively being developed and used on Ethereum,” Binance Research pointed out in the report titled DeFi Series #1 - Decentralized Cryptoasset Lending & Borrowing.
According to Binance Research, decentralized finance protocols, or DeFi applications, offer several promising advantages over traditional financial products, such as:
- Transparency and price efficiency as prices are subject to market demand
- Ease of access and speed when borrowing/lending capital
- Censorship resistance and immutability
Nonetheless, the report points out that the experimental nature of these financial primitives translates to specific disadvantages, such as:
- Technology risk (smart contract risk replaces counterparty risk)
- Low liquidity (limits to borrowing and lending at current interest rate without
materially affecting the equilibrium interest rates)
“Overall, the crypto-powered lending space is still nascent but offers a compelling value proposition whereby individuals and institutions can move past outdated credit models to provide broader access to capital without the need for a trusted intermediary,” according to Binance Research.
About Binance Research
Binance Research provides professional, data-driven insights and analysis for investors in the crypto space to increase the level of transparency and improve the quality of information within the current crypto ecosystem. The team consists of professionals with a background and experiences in blockchain engineering, investment banking, strategy consulting, academic research and data science. For more information, visit: https://research.binance.com/