Decentralized Finance has seen a massive increase in use in the past couple of years. According to Dune Analytics, the growth of this sector has been staggering, currently reaching over 4.7 million users. To put things in perspective, this number is 45 times larger than it was in 2020, making DeFi one of the pillars of the crypto industry.

More than $40 billion are currently locked across different protocols, whether it be in liquidity pools, loans, or collateral. Sadly enough, Dogecoin has been left out of this growing niche because of its incompatibility with the rest of the DeFi protocols.

Or at least it was until the launch of Dogechain. Our chain enables Dogecoin with EVM capability, smart contracts, and a wide variety of financial apps and services.

In this post, we explore the rise of DeFi lending and how Dogechain allows the millions of Dogecoin holders to finally access this convenient and profitable financial sector.

What is DeFi lending?

Decentralized Finance, or DeFi, was born from the idea that today’s financial system relies too heavily on centralized institutions. This over-reliance on third-party intermediaries has introduced a multitude of issues regarding efficiency, trust, and inequality to access.

One of the most important mechanisms in the financial world is the lending and borrowing of assets. Individuals that don’t have immediate access to high amounts of capital can borrow from banks and repay in small increments, with interest. This allows them to make large purchases, such as cars or real estate, and reimburse the loan over time — immediately increasing their purchasing power.

With the emergence of blockchain technology and smart contracts, DeFi protocols aim to make financial tools like lending available to the masses. Moreover, they avoid the inefficiency pitfalls by connecting people through decentralized, peer-to-peer networks.

In DeFi lending, individuals can play the part of either the lender or the borrower without the need for an intermediary. The smart contracts of the blockchain protocol allow these individuals to lock assets and make them available for others to borrow.

All in all, decentralized lending tools make this essential financial instrument more transparent, accessible, and inclusive.

How is DeFi lending different from traditional lending?

When borrowing money from a bank, you need to go through several steps before you can qualify for a loan. Banks typically require a borrower to have a good or excellent credit score, multiple years of credit history, and a low debt-to-income ratio to take out a personal loan.

Additionally, the borrower will need to put up some kind of collateral in case they default on their payments. Sometimes, banks will even ask for an additional individual to be held liable and co-sign as a borrower. This immediately excludes a large number of the global population, even though they would be able to pay out these loans without any issue.

In DeFi lending, there are no prerequisites for qualifying for a loan. Since loans are secured by smart contract automation, the entire process is trustless between the lender and the borrower.

Lenders don’t have to worry about borrowers defaulting on the loan because the over-collateralization of loans ensures that the equivalent value of lent funds can always be recovered by the lender. In turn, borrowers don’t have to go through an approval process, have their credit history checked, or reveal their income to secure a loan.

Furthermore, since there are no intermediaries, the individuals become the lenders — which makes them eligible to earn interest for their service. This also means that it provides a means for individuals to maintain self-custody of assets while earning interest on them.

Why lend crypto in DeFi?

In addition to the aforementioned benefits, lending cryptocurrency has some interesting ramifications. You might wonder why anyone would lock up a larger amount of cryptocurrency in a smart contract only to obtain a smaller amount.

Well, for example, some people are trying to avoid capital gains taxes on their current crypto assets.

Others firmly believe that their crypto assets will see a long-term rise in value. Rather than spend their crypto, they use it as collateral to gain more use of it at the moment. Once they repay the loan, the collateral cryptocurrency that they regain could have increased in value.

Lastly, some people borrow to acquire funds to use as leverage for different trading positions. This allows them to trade with more capital than they possess or to develop advanced liquidity farming strategies that

The concept of over-collateralization

In DeFi lending, users must use cryptocurrency collateral in the form of other tokens that are worth more than the value of the loan itself — usually at least 1.5 to 3 times more. The smart contract regulating the loan takes custody of the collateral until the loan is repaid. Because these ratios require users to lock up more than the amount being borrowed, such loans are called overcollateralized.

Another benefit of DeFi loans is that there are no time limits to borrowing funds. As long as the collateral value stays greater than the value of the borrowed amount, the loan can persist for any span of time. However, if the collateral’s value dips below a target amount or the original value of the loan, the smart contract triggers a self-executing liquidation of the collateral.

Dogecoin in DeFi lending

As you might have noticed by now, DeFi lending is a powerful and incredibly useful financial instrument.

However, Dogecoin holders have been mostly left out of this niche. Although it’s a great payment vehicle, the original meme crypto has its limitations when it comes to decentralized financial protocols. Doge runs on a 1st generation blockchain and is incompatible with existing lending protocols. This prevents millions of DOGE holders from participating in this new financial paradigm. Until recently, the so-called people’s crypto could only be used for speculation, instead of growing one’s wealth.

With the emergence of Dogechain and its smart contracts for Dogecoin, all of this is already changing. The Dogechain blockchain allows users to wrap their Dogecoin and use it in advanced financial products such as crypto lending. Hence, the birth of DogeFi!

So instead of holding DOGE on a centralized exchange like RobinHood, users can:

• Regain custody of their Doge and bridge it over to Dogechain.
• Access landing protocols and start gaining interest immediately with their holdings.

Consequently, Dogechain empowers Dogecoin and turns this speculative crypto into a genuine financial instrument. Instead of waiting for your coins to increase in price, you can start accumulating more by wrapping and lending them.

Conclusion

Decentralized lending and borrowing takes a familiar concept from traditional financial institutions and democratizes it using blockchain technology. DeFi also retains all the benefits of blockchain technology and smart contracts, including reduced transaction fees, permissionless access, self-custodianship, and greater transparency.

Dogechain allows Dogecoin holders to participate in this financial paradigm and potentially increase their wealth through passive income. Lenders can earn interest, while borrowers can access liquidity without having to sell their precious DOGE.

Dogechain is bringing DeFi & long awaited utility to Dogecoin. Join the family!

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