Crypto Lending: New Solutions To Old Problems


By Mahin Gupta, founder of Liminal

The crypto lending meltdown doesn’t show any sign of stopping. The recent news of the liquidity crunch that Celsius faced combined with the bankruptcy of crypto brokerage firm Voyager, has left crypto markets embroiled in controversy. Centralized finance firms continue to face backlash as accusations of ponzi schemes and misappropriations of funds have created a landscape ripe for more secure ways to store crypto. 

An example of this is exchanges acting as an intermediary in facilitating trades for users on the platform, or any other closed blockchain protocol. However, this is not limited to exchanges and has been seen in the uptake of crypto lenders facilitating a wide range of financial services such as lending, trading on margin, and promising exorbitant high yields. While yields are enticing, it forces the consumer to give up significant control over their tokens. We will see a continued shift towards solutions with both controls and insurance in order to ensure continued expansion opportunities into the digital asset security space. 

CeFi firms are distinct from decentralized finance because a centralized entity, like a fintech firm or company, has control over your crypto assets. DeFi uses a trustless, permissionless system where users rely on the technology to perform and correctly execute cryptocurrency-related fintech and other services. Open, public blockchains and the overall transparency of DeFi also allows firms to mitigate and in some cases eliminate certain risks stemming from the ambiguity of traditional financial services.CeFi more closely resembles 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. 

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Lending platforms are freezing withdrawals and transfers, citing ‘extreme market conditions,’ and leaving consumers unable to access their funds. This has been detrimental for consumers as insolvency has left users with no reparation for the losses faced during this turmoil. We have 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 holding of digital assets, leading to a much needed conversation around custody. Maintaining ownership over private keys is instrumental in managing and accessing one’s assets, and a necessary step to empower individuals and other Web3 companies to grow. 

The downsides of CeFi are continually seen as major lending firms like Celsius pause all account withdrawals and investor panic could even further decimate the DeFi world. The liquidity crisis has caused a steep decline in digital asset prices. As a result of this decline, contagion has begun to spread. What has become clear is that there is a market for digital asset protection. After being left in the dark, consumers are aggressively seeking alternative custody solutions that don’t compromise the users authority or autonomy over their private keys or lend as seats.

As news continues to break of crypto-naitive firms facing liquidity crunch, and digital assets are frozen, investors are increasingly looking to house their crypto on decentralized platforms where they maintain ownership of their keys.

Though one can still make the argument that crypto is speculative due to the nascency of the industry, the underlying blockchain technology, protocols, networks, and tokens undeniably have lasting value and use-case. 

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Consumers are looking for alternative solutions which ensure their digital assets are held without risk of the protocol collapsing due to threats such as inadequate liquidity and security. Multifaceted security will become the new industry standard as the industry continues to establish.

Much like the internet age of the ‘90s crypto is in the midst of creating transformational change while also culling the ecosystem of tokens with no utility. As the market adapts, consumer confidence is vital to the health of the overall marketplace. Consumers will only feel confident and willing to be market participants if they feel that their funds are secure. Recent liquidity concerns have just as big an effect on investor confidence as do the hacking issues that have plagued the industry. Whomever can address these concerns will find themselves at the forefront of our current technological 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 country’s largest crypto exchanges, ZebPay. Mahin has over a decade of experience in managing wallet infrastructure and has managed billions of dollars in transaction volumes and digital assets. His background in computer science is robust, contributing to zero security incidents on ZebPay’s highly-secure platform, as well as helping various crypto exchanges and web3 startups, and organizations in protecting their digital assets through 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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