The Research Lab wing of Binance, appropriately named the Binance Research released a report talking about the pros and cons of Ethereum’s borrowing and lending service.
The paper starts off by saying, “Decentralized Finance (DeFi) has grown to become one of the main applications of Ethereum. While the Open Finance initiative is, by nature, platform-agnostic, DeFi applications are almost exclusively being developed and used on Ethereum. One of DeFi’s cornerstones is Dai, a decentralized cryptoasset-backed stablecoin minted in the Maker ecosystem.”
The research paper said that this is the first report in their DeFi Series that will cover different platforms and protocols that aim at disrupting the existing financial industry and infrastructure. Specifically, this report will discuss the foundational cornerstones of DeFi: decentralized cryptoasset lending and borrowing platforms, it added.
The report stated that there were three main advantages of using DeFi, namely: Transparency and price efficiency, Ease of access and speed when borrowing/lending capital and Censorship resistance and immutability. However there are a couple of disadvantages too such as Technology risk and Low liquidity.
Talking about the advantages and the disadvantages of the decentralized the protocol, the report stated that while the pros included improved price efficiency and immutability and censorship resistance, the cons outnumbered the former, such as Lack of insurance mechanism, Difficult to redeem to fiat currencies, Overcollateralization does not help the unbanked and Overcollateralization prevents leveraged trading. The report stated that, “Yet, if these disadvantages are important, most of them are explained by the nascency of the Open Finance industry.”
While the report is definitely interesting, the timing of the report is wee bit suspicious. Although nobody believes, that Binance has the time to conduct personal vendetta, the publication of the report, just a day after Vitalik Buterin stating that the exchange has too much power, is a little too on the nose. It could be a coincidence too.
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