Undercollateralized lending has existed in TradFi for years as “unsecured loans.” However, with DeFi, undercollateralized loans are loans in which the collaterals of the borrowers are not enough to cover the amount taken.
Here are some of the projects that are pushing the boundaries of undercollateralized lending.
Maple Finance exists on Ethereum and Solana. It is a credit marketplace that provides undercollateralized lending for institutional borrowers.
Maple is enabling growth for institutions that are seeking on-chain capital. With it, lenders can earn sustainable yields through borrowing from different pools of blue chips.
Moreover, the protocol has two governance tokens, $MPL, and $xMPL, which allow token holders to partake in governance and share fees in revenue.
Clear Pool Finance
Clear Pool Finance is a decentralized marketplace for unsecured institutional capital. With it, leading institutions can access funds from a decentralized network of borrowers without collaterals. Additionally, Clear Pool exists on Ethereum and Polygon. Lenders can earn attractive interest rates of USDC and more LP rewards paid in their token.
Most importantly, anybody can lend and claim $CPOOL rewards anytime.
Goldfinch Finance lends to institutions and businesses that provide collateral both on-chain and off-chain. It uses the principle of “trust through consensus” to allocate capital to borrowers.
Investors are classified into backers and liquidity providers, who both earn sustainable yields on their investments. Goldfinch also shares its native token, $GFI, to backers regularly.
Atlendis Credit Protocol allows institutions to borrow credit from a decentralized pool of lenders without collateral. An NFT is generated to represent the parameters of the agreement between the lender and borrower.
Lenders on the protocol can earn rewards even when they are not yet matched with a borrower.
TrueFi provides loans to institutional investors without any collateral. The protocol offers sustainable rates of return to crypto lenders. TrueFi is built on Ethereum and OxPolygon. Lenders can stake USDC, TUSD, or USDT lent to borrowers.
In return, lenders earn high yields on capital along with TruFi incentives.
In institutional lending, collaterals are usually in the form of credit scores, bank balances, and proof of identity. Institutions normally have a borrowing threshold to protect the lenders’ interest.
Previously, most financial instruments in TradFi were reserved for the elites and big money, but DeFi now makes it possible for anyone to partake. In DeFi, retail investors can lend to leading-capital markets and get good returns on their stablecoins.
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