Business

Crypto Lending: New Solutions to Old Problems


By Mahin Gupta, founder of Liminal

The crypto lending slump shows no signs of stopping. The recent news of the liquidity crunch that Celsius has been facing, combined with the bankruptcy of crypto brokerage company Voyager, has thrown the crypto markets into controversy. Centralized financial firms continue to face backlash as accusations of Ponzi schemes and embezzlement have created a ripe landscape for safer ways to store crypto.

An example of this is exchanges acting as an intermediary to facilitate trading for users on the platform, or any other closed blockchain protocol. However, this is not limited to exchanges and has been seen in the adoption of crypto lenders facilitating a wide range of financial services such as lending, margin trading and the promise of exorbitantly high returns. Although the returns are attractive, this forces the consumer to give up significant control over their tokens. We will see a continued evolution towards solutions with both controls and assurance to ensure continued expansion opportunities in the digital asset security space.

CeFi companies are distinct from decentralized finance because a centralized entity, such as a corporation or fintech company, controls your crypto assets. DeFi uses a trustless and permissionless system in which users rely on technology to run and properly execute fintech and other cryptocurrency-related services. Open and public blockchains and the overall transparency of DeFi also allow companies to mitigate and, in some cases, eliminate certain risks arising from the ambiguity of traditional financial services. CeFi is more like the traditional financial system in that assets and transactions are managed by a company or other centralized entity, which has full authority over the execution of processes.

Lending platforms are freezing withdrawals and transfers, citing “extreme market conditions” and leaving consumers unable to access their funds. This has been detrimental to consumers, as insolvency has left users without redress for losses incurred during this crisis. We’ve all heard the phrase “not your keys, not your coins”, a saying in the industry that has only solidified in light of these recent events around digital asset holdings, leading to a much-needed conversation about custody. Maintaining ownership of private keys is essential to managing and accessing its assets, and a necessary step in enabling individuals and other Web3 businesses to grow.

The downsides of CeFi are continuously seen as big lending companies like Celsius suspend all account withdrawals and investor panic could further decimate the DeFi world. The liquidity crisis has caused a sharp drop in the prices of digital assets. Following this decline, the contagion began to spread. What has become clear is that there is a market for protecting digital assets. After being left in the dark, consumers are aggressively seeking alternative custodial solutions that don’t compromise users’ authority or autonomy over their private keys or loan assets.

As news continues to come in about crypto-native businesses facing a liquidity crunch and digital assets being frozen, investors are increasingly looking to host their crypto on decentralized platforms where they retain ownership of their assets. keys.

While it could always be argued that cryptography is speculative due to the birth of the industry, the underlying blockchain technology, protocols, networks and tokens undeniably have value and a case for sustainable use.

Consumers are looking for alternative solutions that ensure their digital assets are preserved without the risk of protocol collapse due to threats such as insufficient liquidity and security. Multi-faceted security will become the new industry standard as the industry continues to establish itself.

Much like the Internet era of the 90s, crypto is creating transformational change while wiping out the ecosystem of useless tokens. As the market adapts, consumer confidence is critical to the health of the market as a whole. Consumers will only feel confident and willing to participate in the market if they feel their funds are safe. Recent liquidity issues are having just as big an effect on investor confidence as the hacking issues that have plagued the industry. Anyone who can address these concerns will find themselves at the forefront of our current technology boom.

Mahin Gupta is the founder of Liminal. In 2012, he launched India’s first bitcoin company, buysellbitco.in. He also co-founded one of the largest crypto exchanges in the country, ZebPay. Mahin has over a decade of experience managing wallet infrastructure and has managed billions of dollars in transaction volumes and digital assets. His background in IT is solid, helping eliminate security incidents on ZebPay’s highly secure platform, as well as helping various crypto exchanges and web3 startups, and organizations protect their digital assets via mutlti-sig wallets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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