Aave Founder Reveals: Why is Lending the Core of Financial Empowerment?
Chain-based lending, which began as an experimental concept around 2017, has grown into a market exceeding $100 billion, primarily driven by stablecoin borrowing secured by crypto-native collateral like Ethereum and Bitcoin. This system enables liquidity release, leveraged strategies, and yield arbitrage. Its success validates the real demand and product-market fit of automated, smart contract-based lending even before institutional adoption.
A key advantage of on-chain lending is its significantly lower cost—around 5% for stablecoin loans compared to 7–12% in centralized crypto lending—due to the elimination of financial inefficiencies, intermediaries, and layered fees. This cost reduction stems from open capital aggregation, transparency, composability, and automation, which foster competition and real-time pricing. Innovations like Ethena’s USDe or Pendle integrate seamlessly, expanding the ecosystem without traditional overhead.
The evolution follows a pattern seen in major disruptions: serving niche users first, competing on price before quality, and scaling rapidly. While current on-chain lending often recycles existing collateral for similar strategies, future growth depends on incorporating real-world economic value and tokenized assets, not just replicating traditional finance.
Traditional lending remains expensive due to inefficiencies in origination, risk assessment, and servicing, misaligned incentives, and regulatory constraints. On-chain lending disrupts this by replacing processes with automation, discretion with transparency, and reconciliation with determinism. When fully software-native, it will offer a cheaper, faster backend for global borrowers, empowering broader access to capital and fostering new opportunities.
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