Separating risk from lending keeps DeFi safe from market crashes

Sid Powell, co-founder and CEO of Maple Finance, said that transparency has always been a saving grace for decentralized finance (DeFi) amid a prolonged downturn in the cryptocurrency market.

Speaking to Cointelegraph on the sidelines of the Converge22 conference in San Francisco, Powell noted that throughout the crypto winter, DeFi continued to function as expected, while centralized finance (CeFi) became “pretty inactive.”

Powell said that during the market crash, CeFi lenders did not properly “stand the test” and were not “ready to liquidate customers” prioritizing customer relationships.

“As bitcoin prices plummeted, they didn’t want to send margin call letters or email hundreds of customers because they wanted to maintain customer relationships,” Powell explained, adding:

“So, you give them a little more, a little more — well, all of a sudden a lot of these loans are underwater, especially those that start or [were] Insufficient collateral. “

He noted that where CeFi companies are still lending, “they are doing it with a 1:1 collateralization.”

On the other hand, “DeFi is more transparent,” he explained.In an overcollateralized DeFi model, “people are just liquidated as bitcoin and Ethereum Lost. That happens automatically. “

“In DeFi, you can’t have one borrower be half of the lending pool because people see that and they question the risk management there,” Powell said. “All loans are visible, so you have to be more careful about who you underwrite and how you underwrite them.”

Powell also added that the CeFi business is diversified through trading and prime brokerage, which they see as an advantage, but all of their lines of business interact with each other:

“But if a CeFi lender runs a pool on Maple, that pool won’t be affected by what’s going on in the transaction part of that business. […] It is limited to lending activities. “

related: Decentralized Finance Faces Multiple Barriers to Mainstream Adoption

Maple is a decentralized financial credit platform, claim Holds a 50% share of the institutional crypto lending market as measured by total outstanding loans, with nearly $1.8 billion worth of loans issued since its inception in May 2021.

Powell said Maple loan book was “severely better than CeFi,” with “only $1.8 billion in defaults on $10 million, 900 [loans] Excellent at the time. ”

Powell described Maple Finance as “a place where people run lending pools,” but said a drop in willingness to lend since June has caused loan prices to rise from 8-9% to 10-13%, so crypto whales and yield aggregators have started Again allocated to lending platforms such as Maple.