This sector of the crypto industry has grown rapidly in the last two years. As the saying goes, you make more money selling the axe and supplies to a gold prospector, than the prospectors earn from the gold itself — enter ‘decentralised finance’ (DeFi).
DeFi, can in turn, be split into four types of operations — lending, investing, payments and the trader’s favorite, exchanges.
Lending can be risky yet lucrative at the best of times, even in conventional banks. With the middle man being cut out of the picture, the process only gets more efficient.
It involves direct lending between parties or between ‘pools’ of lenders and borrowers. Interest rates are not regulated, and lending can be with or without crypto collateral provided by the borrower. The borrower benefits from lower fees, and the lender receives higher interest payments than retail banks.
Examples of peer-to-peer lending tokens include Compound and the open-source Aave which claims a market size of $20.5 billion on its site.