Ask anyone and they’ll tell you that Crypto is a high-risk, high-return market.
For this reason, many risk-takers have been attracted to it, while cautious investors have been discouraged from entering the arena.
We can also find many in-betweeners, investors who cashed out their crypto during the bull run and are not sure what to do with their remaining stablecoins.
They could be yield farmers or simply investors who have taken their fair share of risks, but have gotten out of the market after hearing rumors that a big crash was coming. They are enjoying their investment returns, but are also conscious of preserving them into the future.
These are the players in the game. Then we have the sideliners, those watching the action from the benches and waiting for their chance to get in the crypto market.
They are not investors but individuals and SMEs who struggle to secure funding through the traditional banking sector and wonder what financing potential DeFi could open up for them.
Sideliners might not know it, but they represent an unfulfilled credit demand of $1.6 trillion.
So what are cautious investors, in-betweeners and sideliners supposed to do?
Well, the good news is: they can have their cake and eat it, too.
Many don’t know that cryptocurrencies are just one component of the wider DeFi space. In fact, DeFi offers several investment opportunities – some of which are safer than crypto and offer more attractive returns than traditional finance.
But what are they? And will they be able to put investors’ minds at ease after the recent crypto downturn and amongst rumors forecasting an imminent share market crash? Whether the prediction of one of the biggest recessions in history is reliable or not, it certainly echoes the sentiment of many investors.
And it also explains why they are exploring alternative options capable of sheltering their returns.
DeFi lending and crypto lending
Lending is becoming increasingly popular within the DeFi space. While holding crypto doesn’t necessarily generate profits, DeFi lending offers rewarding and guaranteed interests.
This explains the reason behind the blossoming of so many DeFi crypto lending platforms. Thanks to them, any user can make their crypto coins available on the platform with no need for intermediaries. This allows the borrower to take a loan and the lender to earn interests from it.
And, while this is good news as it opens up new opportunities for companies and investors, it is important to note that crypto lending is still subject to market fluctuations.
Established crypto projects, new and riskier ventures and stablecoins; during market turmoil, all currencies are subject to volatility.
Introducing asset-backed lending
This type of lending uses the borrower’s assets as collateral. This means that inventory, equipment, transported goods, letter of credit or other property owned by the borrower are used to secure an asset-based loan or line of credit.
In DeFi, the most common assets that are converted into tokens to be used as collateral are: art, cars, real estate, trade contracts, gold, frequent flyer points and coupons.
The benefits of asset-backed lending
Like all other forms of DeFi lending, asset-backed lending offers complete transparency without the involvement of third-party intermediaries like the banks.
Being built on the blockchain, it benefits from permissionless access, immutability of data, and interoperability of protocols and applications. And because it’s digitally enabled, its lending processes take advantage of fast processing speed.
More importantly, it prevents value loss from coin-value-fluctuations because the asset acts as collateral – therefore anchoring the value of the loan. In case of a defaulted loan, the lender (or the platform acting on their behalf) can take possession of the asset itself.
How to weather the storm
Resilience in the face of market turmoil is one of the greatest benefits of DeFi asset-backed lending pools. Leveraging this opportunity was a catalyst behind the creation of innovative DeFi protocol Defactor.
One of the first ever projects to bring real-world assets into the DeFi space, Defactor enables real-world asset originators to access DeFi liquidity while providing investors with insight into the underlying assets being funded.
Thanks to the risk profiles assigned to the different asset classes, liquidity providers can have greater visibility on who they’re lending to and can choose a level of risk – and corresponding yield, which suits their requirements.
Besides this Risk Factor Framework, Defactor offers an integration layer and a suite of tools that allows traditional businesses to take their existing systems and processes in the DeFi space.
With a strong focus on Trade Finance, Defactor lets SMEs operating in this industry collateralise the transported goods, enabling them to enter new funding pathways. On the other end of the spectrum, liquid providers enjoy greater security knowing that tangible, physical assets back their investments.
And this multi-layered protection is exactly what investors are looking for: a rock to hang on to during a potential market crash and the bear market that usually follows.
Whether you are a risk-taker, a cautious investor, an in-betweener or a sideliner, you should consider asset-backed lending as your next investment move.
Defactor has already partnered with asset originators in the P2P lending, Trade Finance and Invoice Finance industries.
This is why it is uniquely positioned to offer investors ways to receive attractive returns, avoid crypto losses and make the most of their idle stablecoins, while giving SMEs new opportunities to access novel avenues for credit.
In the safest way – even through the storm.
Want to find out more? Visit Defactor’s Twitter.
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