The decentralized finance sector requires a major overhaul in terms of present borrowing criteria.
Forcing people to leverage significantly more collateral than they want to borrow is not a long-term solution.
Hashstack addresses this problem by introducing undercollateralized loans into decentralized finance.
DeFi’s Lending Potential
The notion of decentralized loans and borrowing presents a much-needed alternative financial model. Traditional financial services are inaccessible to millions of individuals. Decentralized finance will benefit the underbanked and unbanked people, but only if the conditions are sustainable.
In today’s banking and borrowing environment, the demands do not make a lot of sense. More particular, customers wishing to borrow funds must set – up 150 percent – or more – of the borrowed amount as collateral. That is odd because one often puts up an upper limit of half the amount they would like to borrow as collateral when working with banks.
Furthermore, the stipulation that one needs to have more money than one intends to borrow does not cater to unbanked or underbanked consumers.
In 2021, S&P Global published a report illustrating how DeFi lending can impact traditional systems. Additionally, they also found several limits that DeFi protocols must rectify. One of the biggest problems is the necessity for collateral, which prevents potentially tremendous growth in loan volumes.
Furthermore, a majority of the present DeFi borrowing includes acquiring new crypto assets instead of addressing real-world issues.
Changing that mindset is critical for decentralized finance to achieve public acceptance. Regrettably, only a handful of protocols offer solutions to these issues. Hashstack and its undercollateralized loans represent a fresh approach to decentralized financing.
Testnet Welcomes Hashstack
DeFi protocols must reduce the collateralization restrictions to make decentralized loans more available. Hashstack Finance recognizes the necessity for reform and hopes to ease the process with its Open Protocol. The new DeFi lending protocol allows for non-custodial and secure undercollateralized loans with a collateral-to-loan ratio of up to 1:3.
It is a positive departure from the current DeFi sector’s standard collateral-to-loan ratio of 1.5:1.
More significantly, after obtaining a loan, consumers can withdraw up to 70% of their collateral. The remaining collateral and bought loan are in-platform trading capital, giving customers greater control over their funds.
The ability to borrow with collateral only a third of the loan amount lays the path for decentralized finance to become more widely adopted by the masses. Boosting the expansion of DeFi lending is critical, primarily for mainstream consumers.
Another significant advantage of Hashstack is the ease with which it connects with current DeFi systems. Users, for instance, can gain access to all of PancakeSwap’s market exchanges and boost loan usage. Borrowers can also exchange borrowed tokens for any other cryptocurrency accepted by its decentralized trading network.
The introduction of undercollateralized loans alters the public’s impression of decentralized finance. Lifting the barriers to acceptance serves as a steppingstone for these revolutionary protocols to be adopted globally. Furthermore, it contributes to the sector’s objective of becoming suitable alternative finance, particularly for borrowing and lending.
Hashstack Finance’s approach demonstrates that collateral conditions for DeFi loans do not have to be as stringent as they are now. Furthermore, its interaction with DEXes like Pancakeswap opens up a slew of new possibilities. Modularity is an essential feature of decentralized finance and combining the technology of many protocols into a single user interface is an enticing alternative.
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