Are there any unsecured crypto loans? Where to look


Crypto natives are familiar with crypto loans because they are the backbone of open lending protocols without any viable alternatives. Since crypto aims to be ‘trustless’ loans tend to be oversized. Over-collateralization highlights one of the hurdles for those who might want to enter the space – not having the initial capital to provide collateral to take out a loan.

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Unsecured crypto loans are seen as one of the missing elements of DeFi. They are believed to be a crucial step in providing accessibility to crypto loans in most countries around the world.

First of all, Goldfinch is a platform to watch. It aims to unlock one of DeFi’s “biggest missing pieces”, unsecured loans. Aave uniquely implements a loan protocol that offers semi-secured loans, partially solving the problem of “over” collateral.

However, many experts agree that with the unlimited capabilities of the Ethereum blockchain, it is possible to solve the problem. The network lends itself to innovative and new alternatives to credit.

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Source: Golfinch

Goldfinch: Unsecured crypto loans

Goldfinch acknowledged that a big obstacle for new borrowers in the crypto ecosystem is the lack of capital. [crypto] they have as an initial investment. He developed a protocol that allows crypto borrowing without any cryptocurrency needed as collateral. Instead, it incorporates the principle of “trust by consensus”.

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This consensus implements a protocol that creates a way for borrowers to show their creditworthiness based on “the collective valuation of other participants” rather than their crypto assets. The collective valuation serves as a signal to trigger the automatic allocation of capital.

By eliminating the need to provide crypto as collateral and providing a means of passive return, the protocol increases “both the potential borrowers who can access crypto and the potential providers of capital who can gain exposure.”

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Aave: Semi-guaranteed loans

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Source: Aave

Apparently, Aave has taken the first step in unsecured loans with its credit delegation product. It allows a user to “delegate” his guarantee to another. A borrower can lend more than their collateral would normally cover.

Thus, the Aave protocol works like a semi-secured loan since the borrower uses the capital of a liquidity provider as collateral to contract a loan.

However, while the Aave has taken a step towards reframing how lending protocols work, the loan itself is still oversized. In the event of loan default, the entire collateral may be liquidated.

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A new set of unsecured protocols is emerging.

Today, emerging models impose elements of loan terms and risk tolerance on each group of loans. They also place the power to vote on new borrowers and loans in the hands of token holders, essentially the implementation of governance.

By constantly refining the use of technology to improve its service and versatility in the lending ecosystem, unsecured loans are starting to take a new form in DeFi. Unsecured loans will now take into account the composition of the Five Cs and not just guarantees or conditions. It will take into account the character of the borrower, the capacity of the lender based on the debt / income ratio and the amount of capital available to borrowers.

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