In the middle of a year of significant growth for the decentralized finance space in the cryptocurrency industry Hong Kong-based Bitfinex today announced its new loan service called Bitfinex Borrow.
“Bitfinex Borrow is a credit platform,” Paolo Ardoino, Bitfinex CTO, told Cointelegraph. “This particular offer is not about borrowing your crypto and making a return.”said. “The crypto loan is being made through Bitfinex’s peer-to-peer lending platform, although it may consist of a pool of loans,” he explained. So, essentially, cryptocurrency loans and credits are not directly tied to a direct and immediate counterparty.
Bitfinex Borrow offers Bitfinex the ability to offer loans to customers. When customers provide crypto assets as collateral for a loan, Bitfinex assigns those assets to another customer as part of a separate product called Bitfinex Funding, hence the peer-to-peer classification. “Bitfinex Financing, Lending Pro and Bitfinex Borrow are all part of the same peer-to-peer lending markets. These are different products that use the same underlying funding pool, “said Ardoino.
Customers can receive US dollars or the dollar-pegged stablecoin tether (USDT) in exchange for their crypto assets, which Bitfinex holds until the loan is repaid., according to the Bitfinex announcement.
Collateral is something that a borrower gives a lender to hold until the loan is repaid. Currently, Bitcoin (BTC) and Ether (ETH) are the two accepted forms of collateral for Bitfinex Borrow.
Interest and speculation in the decentralized financial area (DeFi) reached the area of the bubble in 2020. Random new projects saw immediate parabolic growth, and associated assets have also skyrocketed in price. What began as a fairly simple cryptocurrency-based lending and borrowing system became speculators pursuing the highest returns on their capital allocations.
The glowing DeFi sector cooled slightly as Bitcoin took center stage with its upward price movement, despite a dizzying return in DeFi price movement in recent days.. Bitfinex Borrow is more similar to the pre-recent bubble DeFi credit structure than a continuation of the parabolic trend. Before speculators in search of massive compound interest raised, loaned, and borrowed capital across multiple projects and platforms, DeFi was a fairly straightforward way of offering crypto collateral in exchange for stable coins. Borrowers could use these sturdy coins for their needs without selling their cryptocurrency holdings.
The service offers a fairly wide range of annual interest rates between 5.5% and 18.25% depending on a number of factors such as the term and size of each loan, the Bitfinex statement said. In terms of the time component, the cost of the interest rate increases with the length of the loan, and longer term loans come with higher interest rates, according to Ardoino. In addition, customers can only hold loan items for 120 days.
Two other options also play a role when it comes to the interest rates on these loans: fixed rates or floating rates, which are derived from Bitfinex’s Flash Rate of Return (FRR).
“The FRR is a moving average of the proposed interest rates on Bitfinex’s peer-to-peer financing market,” said Ardoino. “The moving average of the products available in the market is recalculated every hour,” he added. “The crypto loan is provided on a peer-to-peer basis through Bitfinex’s finance comparison engine (separate and separate from the trade comparison engine).”
Customers with partial verification status at Bitfinex are required to keep their borrowed assets on the exchange, but those with higher-level verification can withdraw such funds as per the statement. With Bitfinex Borrow, customers can repay their loans simultaneously or in segments.
While DeFi may open up more opportunities in the crypto industry, the niche also has its fair share of hacking activity.