Unless you have been underwater for a few months, you may have heard that unfavorable macroeconomic conditions prevent participants in the cryptocurrency market from taking risks.
However, early activity of Ribbon Finance’s Ethereum-based structured products company, Lend, suggests otherwise.
Ribbon’s Lend, which went public on Monday, allows depositors to lend unsecured funds to highly liquid institutional market makers.
The protocol users deposited 15 million US dollars, which is a stable currency based on the US dollar. Of that, more than $10 million was borrowed from Alameda-backed volume firm Folkvang Trading and market maker Wintermute, which recently lost $160 million in a hack.
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“Our view is that there is still a demand for higher returns in decentralized finance. Users are willing to move down the risk curve if the risks are worth the money,” Julian Koh, founder and CEO of Ribbon, told CoinDesk. “Unsecured loans to commercial firms with an institutional reputation seem to fit well into this category.”
At the time of publication, the annual interest rate on USDC loans in Folkvang and Wintermute was around 7%. This is significantly higher than the 0.5% available on major decentralized platforms such as Aave and Compound.
Ribbon Lend describes it as “Aave without collateral” and offers the best of traditional and decentralized finance.
The institution can borrow USDC from AAVE at a much lower cost, but at the expense of securing another cryptocurrency as collateral. In other words, the borrower loses the liquidity of the closed collateral, which is not the case with strip loans.
Meanwhile, credit users expect higher returns on unsecured loans than institutions rated by CREDURA for credit quality. Also, lenders can exit their positions at any time depending on the availability of liquidity in the pool. According to Ribbon, most unsecured loans in decentralized finance (DeFi) are fixed-term, which means that lenders cannot withdraw deposits until the loan is due. DeFi is a term used to describe financial transactions that are made on the blockchain without the help of intermediaries.
“Borrowing through tape is more capital efficient,” said Jeff Anderson, CIO at Volkfang. “With the arrival of Lend, Ribbon now offers a one-stop shop for the full range of DeFi products and we are proud to be the platform leader.”
Ribbon recently launched Aevo, a crypto options exchange pioneering the concept of a decentralized treasury of options (DOV) in 2021. DOV options trading is simplified, as investors keep their assets in the treasury, and invest in trading strategies. Options that generate returns.
Perhaps Ribbon’s entry into unsecured loans shows that the sector is heating up with the likes of Maple Finance, Clearpool and TruFi. A recent Reuters report indicated that TruFi has a total market capitalization of $25 billion in unsecured debt. A Reuters survey of 11 lenders also indicated their willingness to continue providing unsecured loans despite the general downturn in the market.
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