DeFi has made significant progress towards being a blockchain-based tech offering a system of financial rails parallel to traditional financial infrastructure.
To scale up the digital innovation ecosystem and give new momentum to fintech, financial projects are figuring out how to integrate next-gen technology with finance. New technologies like 5G, cloud, big data, and AI are forging new paths in finance by leading humanity into a new era – from connecting individuals through connecting things to developing a fully connected, intelligent world. As the world enjoys these intelligent systems and smart homes, the finance sector is reaping from intelligent computing and automation capabilities through blockchain technology.
Blockchain birthed decentralized finance (DeFi), an emerging and exciting financial technology giving centralized finance a run for its money. DeFi is building the future of finance through a new and innovative financial infrastructure, stepping away from the existing financial one used by traditional finance (TradFi).
DeFi is on an upward trajectory, with new financial models coming up in this ecosystem each day. Thanks to DeFi, we have investment tools such as liquidity mining, staking, and DeFi Loans. Decentralized exchanges, among others. How is DeFi able to maintain this growth path?
Decentralized Finance as an Ever-changing and Ever-growing Space
DeFi is a blockchain-based technology spearheading foundational change in finance through the facilitation of entirely new financial products and services that reduce the reliance on legacy gatekeepers and TradFi industry stakeholders. Let us briefly explore DeFi’s transformative effect on finance today.
DeFi Lending/borrowing and DeFi Staking
One of DeFi’s most common use is in protocol-specific money markets. Users can borrow, lend, and stake crypto assets by providing liquidity to a chosen protocol in different types of collectivized liquidity pools.
One issue in DeFi lending that most investors are wary of is the over-collateralization of digital assets. Over-collateralization raises the question, why don’t users receive the amount similar to what they provide as collateral? The answer to this is that protocols need to be kept safe so that they don’t become insolvent and because of this need for safety, the said protocols offer over-collateralized loans. Under-collateralized loans do, in fact, exist as an alternative. They ease burden for borrowers and allow lenders to get more for their provided liquidity due to higher utilization levels. . Under-collateralization is preferred as it is more user-centric and offers better financial efficiency.
Currently on-chain under-collateralization too comes with a few trade-offs such as some implementations relying on trusting the borrowers leading to the protocols whitelisting only certain borrowers or even restricting the eligible set ofboth lenders and borrowers. Such a solution is not permissionless and to rid the lending ecosystem of this hurdle, Nolus goes a notch higher by:
- Making it possible for the borrower to get more than they provide;
- Coming up with an entirely permissionless feature where no restrictions exist on who can be a lender or borrower.
Decentralized Exchange Platforms
A Decentralized exchange (DEX) is a peer-to-peer marketplace connecting crypto buyers and sellers that is non-custodial, i.e., a user remains in control of their private keys when transacting on a DEX platform. Since no central authority controls DEXs, the platforms deploy smart contracts that self-execute as per their set conditions and record each transaction to the blockchain.
In addition, we have standalone DeFi projects with novel technologies built within themselves that are changing the finance scene in their own right. One of these projects is the Nolus Protocol, bringing the world’s first DeFi Lease to decentralized finance.
The Nolus Protocol Pioneering Innovative Changes to DeFi
As an upcoming Web3 financial suite, Nolus comes up with innovative money-market approaches with their unique lease solution to further revamp the DeFi space. They have an inclusive, intuitive, and easy-to-use solution to empower mainstream adoption of DeFi. The goal is to merge TradFi and DeFi using a holistic approach that leverages different financial tools and the advantages that decentralized finance brings to the table.
Leasing/lending on Nolus
The protocol incorporates traditional lease financing into DeFi Leasing by bringing a solution that most people are used to – buy now, pay later. Without requiring users to be finance experts, they can secure a larger amount of a desired digital asset than their current equity balance without worrying about hard margin call formulas or complex lending fee structures.
Fiat on ramping is a proposed part of the Nolus DeFi lending mechanism, a work-in-progress really, where users can exchange fiat currencies for crypto. Upon launch, users would be able to take advantage of this DeFi Lease solution. When the fiat on-ramping comes to fruition on Nolus, users can transfer fiat or crypto from a bank account/debit/credit card/ crypto-enabled wallet, make a down payment in the amount desired, and approve the smart contract.
With the Nolus Defi Lease, users have the full freedom to customize the parameters of the on-chain contractual agreement.
Some key features of the DeFi Lease include:
- Financing up to 150% on the initial investment.
- 40% lower liquidation rates compared to the market average.
- Total costs of financing and transactions are low.
- Asset ownership lies within the user.
- Self-repaying loan mechanisms.
Integrating Divergent Finance Services into one Platform Contributes to the Growth and Adoption of DeFi
The wide-scale proliferation of DeFi technologies, such as the Nolus Protocol discussed above, gives rise to a new paradigm of financial products and services leveraging blockchain and tokenized digital assets. Users can use DeFi as an investment tool to access other financial instruments such as lending, staking, derivatives trading, borrowing, or even Nolus’ novel DeFi Lease solution.
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