ETH is causing major problems for Defi platforms. The Defi lending space isn’t a stranger to controversies and governance issues, with many participants using different strategies to obtain yield in this hyper-competitive environment. One of the popular instruments for doing so has been lending Ethereum to earn interest from the staking rewards, which have recently been at above 20% on platforms like Aave and Compound.
However, many users do not like staking actual ETH for the rewards — it is an illiquid position and if there are any staking issues or government intervention, things can go south quickly. Hence, many users prefer borrowing ETH instead to get their returns, especially for shorter periods.
Two of the Ethereum forks, Ethereum Classic (ETC) and Callisto Network (CLO) are currently offering annual interest rates of above 20% without any lockup period, unlike in staking.
To attain these returns, all one needs is an Ethreum address with some coins in it. In fact, the company amount doesn’t even matter as long as it’s nonzero! The catch here is that these tokens aren’t fungible — they cannot be traded nor can they be moved around without destroying them in the process. These are useless tokens until they get swapped back into ETC or CLO sometime next year.
ETH Keeps DeFi In A State Of Bother
The process involves the borrower locking up the company in a smart contract while they take out a loan with another party (often referred to as “minter” or “pledge”). Minters earn yield by staking their own coins against incoming loans.
If you’re a minter, you can lock up your funds for as little as four days or up to 90 days – depending on what kind of deal you make with different lenders. In fact, according to a report by DeFi Pulse released on Thursday (July 18), “borrowing” has become so popular that it’s increased substantially over the past few months.
The number of loans given out by open-source lending platforms such as Dharma and Compound has increased from around $500 million per month in Q1 to $2 billion in Q2.
However, some investors have been hesitant about using this kind of service because they don’t want their collateral held by someone else — but now with DeFi Catalyst’s new product you can lend your Ether without having to lock up any funds yourself.