Undercollateralized Loans in DeFi – Why the future of lending is decentralized?

Since gaining prominence in recent years, cryptocurrency has significantly impacted the global financial market, especially with the development of decentralized finance (DeFi) and cryptocurrency loans. Today, multiple independent financial platforms provide various sorts of crypto loan services, which offer considerable benefits to borrowers and lenders alike. For 1.7 billion individuals worldwide, traditional credit markets are still mostly inaccessible. To begin, you’d need a credit score and assets (collateral) or income to entice the banks’ credit assessors. Without even mentioning the enormous red tape and long loan approval processes by traditional banks. To remove these limitations, decentralized lending platforms like Aave (AAVE), Compound (COMP), and Maker (MKR) allow anybody anywhere to acquire loans (MKR). There’s no need for bank accounts or lengthy credit checks with the initial generation of decentralized lending protocols. But there is a problem with this type of trustless, overcollateralized loan – collaterals. Underbanked or unbanked users can’t afford (or don’t have) the requisite crypto collateral. We need a new solution for these individuals – uncollateralized crypto loans are the answer. The Birth of DeFi Lending with Overcollaterized Loans With no third parties and no KYC processes, decentralized money marketplaces like Aave run trustlessly. DeFi loans are heavily overcollateralized to preserve their tru...