From banks to DeFi: the evolution of the lending market

Jiahua Xu and Nikhil Vadgama

Papers from arXiv.org

Abstract: The Internet of Value (IOV) with its distributed ledger technology (DLT) underpinning has created new forms of lending markets. As an integral part of the decentralised finance (DeFi) ecosystem, lending protocols are gaining tremendous traction, holding an aggregate liquidity supply of over $40 billion at the time of writing. In this paper, we enumerate the challenges of traditional money markets led by banks and lending platforms, and present advantageous characteristics of DeFi lending protocols that might help resolve deep-rooted issues in the conventional lending environment. With the examples of Maker, Compound and Aave, we describe in detail the mechanism of DeFi lending protocols. We discuss the persisting reliance of DeFi lending on the traditional financial system, and conclude with the outlook of the lending market in the IOV era.

Date: 2021-04, Revised 2022-12
New Economics Papers: this item is included in nep-pay
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Citations: View citations in EconPapers (11)

Published in Enabling the Internet of Value (2022) 53-66

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2104.00970

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