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BIS Bulletin | No 57 |
14 June 2022
Key takeaways
- Lending platforms are a key part of the decentralised finance (DeFi) ecosystem, but their institutional features mostly facilitate speculation in cryptoassets rather than real economy lending.
- Due to the anonymity of borrowers, overcollateralisation is pervasive in DeFi lending, which generates procyclicality. Reliance on collateral also limits access to credit to borrowers who are already asset-rich, negating financial inclusion benefits.
- For DeFi lending to make inroads into the real economy, it needs to tokenise real assets and rely less on collateral by developing its ability to gather information about borrowers; as such, the system is likely to gravitate towards greater centralisation.
