Things to Consider With a DeFi Collateralised Loan
Your typical DeFi loan is one of those things which can be very helpful if it is properly used and set up. However, one of the basic premises that you’ve got available is that there are numerous ways to do things, a lot of different options to experiment with, and plenty of choices.
With all that being said, there are a handful of considerations for anyone who is interested in the DeFi loan, and it means that you do need to think a bit about what’s involved. To try and make sure that you get the best possible experiences, we have looked at some of the most important considerations for a decentralised finance option.
No Fixed Currency
The thing about decentralised finance is that there is often no fixed currency involved. You will get whatever currency you want, but if you then want to expand and go somewhere else with it, you may have to suffer conversion rates or, if you are dealing in crypto-based currencies, then you will have to understand that the inherent volatility of the currency may contribute to a lesser value of the loan you’ve been given.
One of the defining assets of an Ethereum-based blockchain loan system is that everything is public knowledge. When a loan is issued, that information is made available to all users on the network, so everybody can see how much you have been given, and what business you are working with.
This type of process can have benefits, like for example when performing data analysis or accessing network activity regardless of where you are, but it can also be a disadvantage. There is no way to hide with this type of loan, so if you’re attempting to conduct business deals quietly, that may not be possible.
Decentralised finance doesn’t require any kind of check or screening in order to get a loan. Most people with a crypto wallet and an active network connection can get a loan, but this can have drawbacks. If you are not in a good place financially, a loan may further damage your situation, so the check, which may seem frustrating at first, could, in fact, be what prevented you from falling into further hardship. There is no safety net there, so you will have to make decisions based on your own knowledge, which does bring an element of risk.
Ultimately, decentralised finance can be a very powerful resource for any trader or business, but there are things to consider regardless. Every acquisition brings an element of risk, and it’s important to understand what the risks are in this specific situation so you can make the best decisions. It is important to carefully examine all of the different facts and figures when it comes to decentralised finance, in order to work out if it is the correct choice for you. Most of the time it is, but doing your research beforehand is never a bad thing.
Find out more about Flashloans in the DeFi ecosystem HERE