According to data from the Statista aggregator, the decentralized finance (DeFi) market reached a record value of $ 274 billion in 2021.
This figure reflects the total number of cryptocurrencies blocked in multiple blockchains in which decentralized applications and protocols were developed that serve to generate returns in cryptocurrencies and also request loans.
What is a protocol and how does it work? Is about Autonomous programs based on a set of smart contract rules that allow the exchange of financial services between users.
Its main characteristic is that are decentralized, that is to say, they do not depend on a financial or traditional entitytherefore, it can be accessed without asking for special permissions.
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In practice, the protocols are used to deposit cryptocurrencies and generate returns in digital dollars; as well as to request a loans in virtual money.
This last vertical of loans works the same as a pawn shop: a user deposits an amount of cryptocurrencies as collateral in a decentralized protocol and withdraws digital money that they can then use to, for example, invest in other cryptocurrencies or acquire some good.
In other words, all decentralized lending protocols require “mortgaging” cryptocurrencies to receive digital capital in return.
The fine print to ask for cryptocurrency loans
In all cryptocurrency lending protocols, it is necessary to have a digital wallet such as Metamask, Trust Wallet, Wallet Connect, Argent, Ledger, among others.
Once the account is opened, you have to fund the wallet with cryptocurrencies and then deposit them as collateral in the protocol and finally request the loan.
However, there is fine print and several issues to consider: on the one hand, Each protocol asks for a different type of asset that must be deposited as collateral to withdraw the loan. That is, depending on the protocol They will deposit bitcoins, ethers or stable cryptocurrencies such as USDT, DAI or BUSD.
On the other hand, the “ratios” vary, that is, the protocol settlement margin. Let’s take an example: A user deposited Bitcoin at US $ 20,000 to receive a loan and the protocol established that the collateral will be liquidated if the crypto falls 60%.
An extreme market correction arrives, Bitcoin falls 60% and the person still could not pay the debt. Therefore, the protocol automatically keeps the digital asset because it no longer covers the requested amount.
These are the 4 most popular cryptocurrency lending protocols
One of the most popular is Venus Protocol, a decentralized lending protocol that allows users to deposit different types of cryptocurrencies as collateral and borrow other cryptocurrencies.
How is Venus Protocol used? First of all, you have to enter the official site of the protocol in this link.
Second, click on “Launch app” and then the user will enter the Venus Protocol panel to start trading, after linking their MetaMask digital wallet.
Next step, enter the panel and click on “borrow market”, in Spanish, loan market to begin the application process.
How much can you borrow? The ratios are up to 60%, that is, if Bitcoin is trading at $ 10,000 and the popular cryptocurrency is deposited, users will be able to ask for up to $ 6,000.
It is a protocol (you can enter the official site here) that works as a Lending platform that allows users to borrow the stablecoin rUSD at very low rates.
In the previous protocol, users invest a total sum of money and based on that the total loan was calculated. However, In the case of Ramp DeFi, settlements are made by “vaults”, that is, by each of the smart contracts of Ethereum, the network of smart contracts.
In these vaults, users can store their cryptocurrencies and obtain tokens that can later be used as collateral.
In simple terms, vaults work like pools of funds that use particular strategies to maximize returns on the assets they contain.
It is a protocol of decentralized loans using the TerraUSD (UST) cryptocurrency, a digital asset that is backed by the Luna digital currency of the Terra blockchain.
To be able to enter this protocol, you have to buy UST, synthetic dollars from Terra, and then, deposit them in the protocol so that the bonds are credited $ bMoon.
These bonds are “locked” in Anchor Protocol and can be used to exit the platform in other protocols such as Mirror and continue to generate income on those surety bonds.
It is one of the most popular protocols on a global scale that is used to deposit your cryptocurrencies and receive interest. You can enter the official site of the liquidity protocol at this link.
In addition, AAVE allows apply for stable cryptocurrency loans and to access them, you have to connect a wallet with the protocol and enter the section “deposit interest”.
Then within “Control Panel“People can see how much money they requested, what is the valuation of their total and vault deposits, the security of the loan, among other factors.
HOW TO VIEW ALL DECENTRALIZED LOAN PROTOCOLS
Pages DeFi Rate (enter here) and Pools.fyi (you can enter the site at this link) allow users to evaluate the investment returns and commissions of all the protocols of the cryptographic ecosystem.
The information on such sites is updated hourly and allows individuals to track rates and investment returns.