The peer-to-peer aspect of the cryptocurrency and blockchain industry is one of its crucial pillars. The advent of DeFi gave rise to peer-to-pool trading, which is proving beneficial for decentralized lending and borrowing, among others. The traditional decentralized lending and borrowing approach has serious flaws that need to be addressed, and peer-to-pool trading may be the answer.
Peer-to-pool trading makes sense
For decentralized financing projects, it is essential to remove all intermediaries from the equation. However, there must still be sufficient and viable infrastructure to serve the common good. I am a big fan of peer-to-pool trading, where peers can interact with a pool of cash for a variety of purposes. The most common use case is borrowing and lending, as borrowers pool their resources to make it as accessible as possible.
In addition, DeFi cuts out middlemen and replaces them with smart contracts. Not dealing with intermediary individuals makes the process simpler and removes all delays from the equation. It’s a strong system that brings financial products and services to those who need them most.
Unfortunately, I cannot ignore the flaws in this current model. Users need to own specific crypto assets if they want to participate in peer-to-peer trading and lending, which is not ideal. Cryptocurrencies don’t have that level of appeal today, and they never will if our industry remains in a closed loop. We need to find ways to engage users who want decentralized financial benefits without the specific requirement of cryptocurrency. There are trillions of dollars in real world assets that DeFi can leverage to its advantage if only the necessary infrastructure existed.
A second problem that annoys me is the lack of support for third party liquidation. This may sound strange, as most people see lending and borrowing as a way to help those in need rather than as a financial benefit. However, when a borrower cannot repay a loan, he must take his stand effectively. Allowing third parties to do this provides an incentive for users to monitor the lending space and ensure that it remains healthy at all times. Ensuring efficiency is crucial and not always something that smart contracts can achieve.
Support for cross-chain assets and beyond
One way to change the closed-loop nature of DeFi loans is to explore the cross-chain option. It’s not just about bringing DeFi solution to different blockchains, but also supporting native assets and community members. They can provide more liquidity and visibility and pave the way for wider adoption of decentralized lending and borrowing. Additionally, it removes the need for users to own particular assets and brings more viability to assets that people may own, but which are often overlooked by DeFi protocols today.
Although several projects have already explored the cross-chain option, these efforts seem a bit limited. I understand the developers want to focus on the “bigger” blockchains for now, but that still leaves far too many people out in the cold. Instead, the focus should be on including more marketable assets and moving away from individual cash pools. Peer-to-pool is all about extending asset support even beyond the crypto space.
One protocol catching my attention is Kine, a decentralized protocol focused on liquidity pools backed by a customizable portfolio of digital assets. Most importantly, it supports non-crypto assets by supporting any index-based asset. Allowing users to mine unencrypted assets is, IMHO, one of the developments that can bring decentralized solutions like Kine into the mainstream. In addition, the project can adapt to any channel in DeFi to provide an optimal user experience.
Another advantage offered by Kine is the assumption of responsibility for the liquidation by a third party. Opting for this method encourages everyone in the ecosystem to do their best and point out users who are unable – or unwilling – to repay their loans on time. Normally, only project developers can liquidate positions, but Kine will ultimately allow any user to do so. For now, third-party liquidation is accessible to whitelisted addresses. However, any user can view the liquidation history, providing an additional layer of transparency. A crucial development highlighting the versatility of decentralized finance without sacrificing community commitment.
There is a bright future for DeFi if more developers leave the “easy way” and focus on the needs of the industry. I’m not talking about what DeFi needs, but the transformation that finance must go through to provide equal access to services and products through decentralization. There is a vast ocean of cash, users, and potential, but very few are forward-thinking enough to recognize this untapped segment and how it can benefit millions, if not billions, of people.
Supporting cross-chain assets is a critical first step, but it doesn’t stop there. I am very excited to unlock the full potential of non-crypto assets in a decentralized financial framework. Developers who have the courage to try and tap this segment will gain an unprecedented competitive advantage and lead the charge to bring decentralized finance into the mainstream in the years to come.