DeFi lending: intermediation without information?

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.