Amid a year of significant growth for the decentralized financial space within the crypto industry, Hong Kong-based crypto exchange Bitfinex today unveiled its new lending service dubbed Bitfinex Borrow.
“Bitfinex Borrow is a lending platform,” Paolo Ardoino, Bitfinex’s chief technology officer, told Cointelegraph. “This particular offering is not about lending your crypto and getting a return on it,” he said. “The crypto loan is obtained through Bitfinex’s peer-to-peer lending platform, although it may consist of a pool of available credit,” he explained. direct and immediate counterparty.
Bitfinex Borrow acts as a way for Bitfinex to offer loans to customers. When clients offer crypto assets as collateral in exchange for a loan, Bitfinex then allocates those assets to another client 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 credit markets. These are different products that use the same underlying funding pool,” Ardoino said.
Customers can use US dollars or dollar-linked stablecoin Tether (USDT) in exchange for their crypto assets, which Bitfinex will hold until the loan is repaid, according to Bitfinex’s announcement.
Interest and speculation in the decentralized financial space, or DeFi, space reached bubble area in 2020. Random new projects have seen immediate parabolic growth, with their related assets are also rising in price. What started as a fairly straightforward system of cryptocurrency-based lending and lending turned into speculators on the hunt for the highest return on their capital allocation.
The red hot The Fi sector cooled somewhat when Bitcoin took center stage with its upward price action, although a rising DeFi price action returned in recent days. Bitfinex Borrow is more like the DeFi loan structure from before the recent bubble than a continuation of the parabolic trend. Before speculators began to harvest agriculture, they borrowed and borrowed capital across multiple projects and platforms in search of huge compound interest, DeFi acted as a fairly simple way to offer crypto collateral in exchange for stablecoins. Borrowers could use those stablecoins for their needs without selling their crypto holdings.
The service comes with a fairly wide range of annual interest rates, between 5.5% and a steep 18.25%, pending a number of factors, such as the length and size of each loan, Bitfinex’s statement said. As for the time component, Ardoino says interest rates increase in cost based on the loan term, with higher interest rates on longer loans. In addition, customers can only hold borrowed money for 120 days.
Two other options also come into play when it comes to interest rates on these loans: fixed interest rates or variable interest rates derived from Bitfinex’s Flash Return Rate, or FRR.
“The FRR represents a moving average of the interest rates proposed in Bitfinex’s peer-to-peer financing market,” Ardoino explains. “The moving average of what is available in the market is recalculated every hour,” he added. “The crypto loan will be provided on a peer-to-peer basis through Bitfinex’s funding matching engine (separate and separate from the trading matching engine).”
Customers with partial verification status on Bitfinex must keep their borrowed assets on the exchange, but those with top verification can withdraw such funds, the statement said. Bitfinex Borrow allows customers to repay their loans in one go or in segments.
While DeFi may be unlocking further opportunities in the crypto industry, the niche has its fair share of it too hacking activities.