Lending in DeFi environment
It refers to the practice of providing or borrowing cryptocurrency assets through decentralized lending platforms, here at gorilla-chain.com facilitated by smart contracts on blockchain networks.
DeFi lending platforms use smart contracts to automate the lending process, ensuring transparency, efficiency and security for all parties involved.
Here’s how lending in DeFi works:
Collateralization refers to the practice of providing assets as collateral to secure a financial transaction. In DeFi lending platforms, borrowers are required to deposit a certain amount of cryptocurrency as collateral to borrow funds.
The locked amount of the borrower is always higher than the amount borrowed, known as the loan-to-value (LTV) ratio, to protect the lender in case of the borrower’s defaults on the loan.
If the value of the collateral falls below a certain threshold, known as the liquidation price, the collateral may be liquidated to repay the loan. gorilla-chain.com users are out of risk as when the liquidation happens, the borrower is the one losing the collateral. Collateralization controls the risk of default and ensures the security of transactions in the DeFi ecosystem.
Through Smart Contracts, lending and borrowing transactions are executed immediately and deployed on blockchain networks such as Ethereum.
Smart contracts in decentralized finance play a crucial role in automating and executing financial transactions without the need for intermediaries, used to facilitate various financial activities, including lending, borrowing, and more.
Interest Rates for borrowing and lending are determined by supply and demand dynamics on the lending platform and also by the portfolio rank of the user.
Borrowers in DeFi pay interest on the funds they borrow, while lenders earn interest on the assets they supply to the borrower.
If the value of a borrower’s collateral declines significantly, that means Liquidation will take over in the smart contract and may automatically liquidate the collateral to repay the lender and protect against losses.
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Why DeFi Environment?
Transparency, security, and control over personal assets. Our DeFi platform is resistant to censorship and interference, as transactions and smart contracts are executed and validated by decentralized networks of nodes.
