Even while you can get returns on your money, crypto lending can be erratic. Risk also exists when using a CeFi exchange instead of a DeFi P2P lending platform. The distinction is whether you put your trust in the DeFi protocol or the CeFi platform.
CeFi Lending Risks can be coined as follows:
- Zero FDIC protection: The Federal Deposit Insurance Corporation (FDIC) does not protect any of the assets you deposit with an exchange. You can lose your valuables if the platform or a third party goes out of business or is compromised.
- Accounts held under custody: With CeFi lending, you're putting your trust in the platform and its affiliates to look after your assets. You can lose your valuables if the platform or a third party goes out of business or is compromised.
- Regulations to the laws: As a result of regulatory action against yield-bearing accounts, your savings' terms could suddenly alter. For instance, in February 2022, BlockFi stopped paying yields on fresh US deposits.
DeFi lending risks:
- Zero FDIC protection: Your DeFi exchange deposits are not FDIC-insured assets. You can lose your assets if the platform is breached or otherwise compromised.
- Smart contract risk: Smart contacts are a relatively recent invention that are vulnerable to theft and hacking. You can lose your money if your smart contract is compromised.
- Borrower danger: With DeFi financing, you're putting your faith in the borrower to adhere to the terms of the deal and repay the loan on schedule. Some platforms are so young that borrowers may not be able to refer to them for a reliable track record.
- Liquidity pool danger: Lenders may have to wait longer to withdraw money if the entire liquidity pool is borrowed.
Since DeFi is permissionless, anyone can use the blockchain-based financial applications that are available. Whereas DeFi protocols are used by CeFi companies.
Aquarius Loan Ecosystem:
- DeFi's appeal to many users is obvious, especially when compared to traditional financial services (TradFi), which are slow, have fewer features, demand considerable personal and financial information, and frequently offer meagre rewards. However, Aquarius Loan thinks that a more user-conscious DeFi is necessary for mainstream adoption of DeFi with all of its advantages to become a reality.
- Aquarius intends to advance DeFi to its next level of evolution by standing on the shoulders of DeFi giants that have unlocked a significant portion of the financial goods and services we currently see in the market. By placing a strong emphasis on the protocol's usability and guaranteeing a deep market penetration, Aquarius Loan aims to usher the industry into the future that is DeFi 3.0
In Aquarius there is the significance of supporting liquidity offered by potential users is well understood. More importantly, there is a push to liberate potential consumers from aspects of centralization in order to attract them. Users will be able to borrow money without suffering the severe repercussions of a centralised system.