An Introduction to DeFi Lending & Borrowing

Chapter 25:

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Introducing lending and borrowing on DEFI

Lending and borrowing are regular financial activities that most readers have already participated in for starting a business, buying a home, or covering unexpected expenses. In traditional finance, your loan or principal, the amount you can borrow, and the interest rate you must pay is determined by your credit score. Sometimes your loan, particularly for a property, is secured by your home. 

With DeFi protocols, lending, and borrowing directly without intermediaries is now possible. DeFi protocols are built on various blockchain networks, which means they are open and transparent and can be accessed by anyone with an internet connection. The conditional factor in getting a DeFi loan is having enough collateral. 

Collateral is like the home that secures your mortgage in case of non-repayment. Unfortunately, DeFi has no uncollateralized loans yet, but as decentralized ID systems evolve, this will likely change in the coming years. 

Many DeFi protocols offer lending and borrowing services with unique features and benefits. We will introduce and use one of the first, AAVE, and to keep gas costs low, we will interact with the AAVE dApp and its underlying smart contracts on the Polygon network. 

Previous: Staking in the Cosmoverse

Next: Lending and borrowing on Polygon with AAVE