On-chain borrowing refers to obtaining a loan directly on a blockchain network using smart contracts. This process typically involves depositing cryptocurrency as collateral into a decentralized lending protocol, which then issues a loan in another digital asset. The terms of the loan, including interest rates and repayment schedules, are immutably coded into the smart contract. This method removes the need for traditional financial intermediaries, offering greater transparency and accessibility to credit within the decentralized finance ecosystem.
Context
On-chain borrowing is a fundamental component of decentralized finance (DeFi) and is regularly featured in crypto news regarding market trends, protocol updates, and risk assessments. Discussions often highlight the efficiency and accessibility of these loans versus traditional finance, alongside considerations of collateralization ratios and smart contract security. Future developments anticipate the expansion of on-chain borrowing to include a wider range of collateral types and more sophisticated lending products, potentially integrating with real-world assets.
A major financial platform is bridging DeFi lending with traditional card networks, transforming crypto-backed credit into immediate, real-world purchasing power.
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