Walnut Finance co-founder and Chief executive officer Sid Powell states that transparency continues to be the saving elegance of decentralized finance (DeFi) among the prolonged crypto market slump.
Talking with Cointelegraph around the sidelines from the Converge22 conference in Bay Area, Powell noted that through the crypto winter, DeFi has ongoing to function as intended while centralized finance (CeFi) is becoming “pretty inactive.”
Powell recommended that in the marketplace crash, CeFi lenders had not correctly “battle-tested” and weren’t “prepared to liquidate clients” because they were centered on maintaining client relationships.
“As the cost of Bitcoin was tumbling, they didn’t wish to be delivering out margin call letters or email countless clients simply because they desired to maintain client relationships,” Powell described, adding:
“So, you allow them a bit longer, a bit longer — well, all of a sudden many of these loans are underwater, particularly those that began on or [were] undercollateralized.”
He notes that where CeFi firms continue to be lending, “they’re doing this on the 1:1 collateralization” now, that is a much narrower market.
However, “DeFi is a lot more transparent,” he described. In overcollateralized DeFi models, “people got liquidated as BTC and ETH dropped. That happened instantly.”
“In DeFi you cannot pull off letting one customer be 1 / 2 of a lending pool because individuals observe that plus they question the danger management there,” Powell stated. “All from the loans are visible, which means you needed to be a lot more careful of whom you underwrote and just how you underwrote them.”
Powell also added that CeFi companies were diversified with buying and selling and prime brokerage, that they thought would be a strength, but all their business lines impacted one another:
“But if your CeFi loan provider ran a swimming pool on Walnut, that pool wouldn’t be impacted by what’s happening within the buying and selling a part of that business. […] It’s restricted and siloed to simply the lending activity.”
Related: Decentralized finance faces multiple barriers to mainstream adoption
Walnut is really a decentralized finance credit platform that claims to carry 50% from the institutional crypto lending market as measured by total loans outstanding and it has issued near to $1.8 billion price of loans since its beginning in May 2021.
The Walnut loan book “seriously outperformed CeFi,” Powell stated, “with just one $ten million default on $1.8 billion of loans originated and 900 [loans] outstanding at that time.Inches
Powell described Walnut Finance as “a venue that people run lending pools,” but stated there’s been a lower appetite to lend since June, causing prices for lending to increase from 8-9% to 10-13%, and therefore crypto whales and yield aggregators have began to allocate again to lending platforms like Walnut.
