Will all Crypto Lending Platform Collapse Due to Over Leverage?
If you haven't noticed, the difference between people who invest in cryptocurrency and people who invest in other financial commodities is that crypto investors are putting the money where their mouth and heart are, and they do the checking every day. Regardless of either a project fails or not, crypto investors keep investing in this new space that will make a difference over time. This now makes them enthusiasts even while still being investors, something not found with other types of investing. But while we all look like hard rocks behind our investments, it is important that we understand the situation we are in currently in the crypto market, and what might happen over time.
If I say the price of crypto could fall to 80%, a lot of people won't take it likely with me, but the truth remains that it has happened in the past. In 2017, the Bitcoin market went from $1000 to $20k, and in 2018, it dropped to $3k. Amazing right, well a lot of people lost money then, but we need to understand what caused the crypto bear market then and while it might be a little different now.
In 2017, a lot of people were relatively new into the space, and so many of them were investing money they could not lose with the intent of making millions overnight. The bull market of 2017, made ICO millionaires in matters of weeks, and people were confident that they could become the next billionaire over time, but then, the ICO rug pull began as people started to defraud people of their hard earn money after selling tokens that wouldn't see the light of the day. This was the beginning of the bear, people started losing money they couldn't lose to ICO scammers. The 2018 bear was fuelled by extreme volatility in a new market, exchanges hack such as Binance hack, Bitfinex hack and many more.
This time it is different. The market has been unstable due to the ripple effect from crypto lending platform. When I looked at the news in the crypto space from Celcius, Terra, Voyager, and many more. I realize the problem is that companies like the previously listed promises return on investment to their investors, and then poorly manage the investor's funds by over leveraging their money to make higher returns. Most of these projects, having almost the same use case (lending) are also having the same problem, and funny enough now, people can't even withdraw their money.
What happens with this lending company is, they take your money and use it as a collateral to get more money from one company, then take the money from the company, use it as a collateral to get more loan from another company, and so on, with the intent of doing business with the borrowed money, until they are over leveraged.
We have seen what is happening with projects like Terra, Celcius, Voyager and many more, and it now looks like a domino, making me ask If all crypto lending platform will go bankrupt
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Hi Friend
Some of the lending platforms are almost bankrupt and this is not a good signal in the crypto market but I hope this should not be repeated further else people might lose trust in the ecosystem. Again there is nothing that we can predict but we surely need to be careful. Thanks
You see, the crypto space is quite new. You can tell that there will be so many failed sectors. Just like IPO came and didn’t make a lasting stay in the crypto world, there will be innovations to the Lending sector in the crypto world
Lending platforms almost always tend to have this issue of being over leveraged at a point and everything falls apart. When that time comes people who have funds in the platform may lose it. The early birds in such platforms are usually the ones who enjoy it, before the problems of over leveraging happens. Thanks for sharing!
Sort of like a borrow from Peter to pay Paul rule? It will be better if this funds are being checked transparently in a decentralized manner
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This draw lots of concern ive asked myself recently if these DeFi platform can ever be trusted in the next crypto run although crypto is much upregulated but with these there is much need for concern thanks for sharing.
You mean Cefi? Because most of these platforms are centralized lending platforms. Their failure has been causing a lot of market imbalance