DeFi Borrowing, Trading and Options

Decentralised finance (DeFi) has changed how financial markets work worldwide. It has made financial transactions much more streamlined, secure, private and hassle-free.

A noteworthy contribution DeFi is that it has revolutionised the lending and borrowing process. As a crypto investor, it would help if you know the process of borrowing, lending and trading on the DeFi platforms. 

Here’s more on DeFi trading and borrowing. 

What is DeFi borrowing and lending? 

Decentralised finance platforms have peer-to-peer networks allowing users to borrow, trade, and lend their crypto assets. You can get easy access to loans without needing any third party. Moreover, you can use your crypto assets to provide loans to other users and earn interest in the process. There are various decentralised applications or DApps that you can use for this purpose. 

DeFi apps utilise blockchain technology to make borrowing and lending seamless. The high encryption and immutability of information blockchains provide make the whole platform secure and devoid of corruption. These apps also leverage smart contracts to make the entire process automatic and free of human errors. Experts have observed a steady growth rate in getting loans using these applications.

Compared to traditional banks or financial institutions, a DeFi platform loaning process is more transparent. Furthermore, on these platforms, there is no delay due to credit checks. This is a major reason the traditional lending process takes so much time. 

There are three parties in DeFi borrowing: the borrower, the lender and the crypto exchange or the DeFi platform. 

Now that you know DeFi borrowing, let's learn how to get a loan from a decentralised platform. 

How to borrow using a DeFi platform?

There are many DeFi platforms that you can use to take a loan. For your convenience, let’s take the example of Binance. 

The steps to get a loan from Binance are:

1. Go to https://www.binance.com/en
2. Create an account or Log In if you already have one
3. Click on the ‘Finance’ drop-down menu
4. Enter the Crypto Loans page
5. Select the crypto you want to borrow and the amount
6. Choose the crypto coin you want to provide as collateral

You can see the collateral amount you have to provide on the Initial LTV on the right panel.

7. Select the time you want to borrow the assets
8. Check the details of the loan and press on ‘Start Borrowing Now’

The best DeFi borrowing apps are:

• Aave
• Binance
• Compound
• Solend 
• Sturdy

Important pointers on DeFi borrowing

• If you are resorting to DeFi borrowing or lending with the purpose to diversify your portfolio then you should remember that there is a certain risk associated with it. Portfolio diversification through lending and borrowing can bring extra risk to your portfolio. 
• In case you are borrowing assets from a decentralised exchange and the value of the assets you borrowed increases or the value of your collateral decreases, there is a chance that your assets may get liquidated. 
• As DeFi platforms are unregulated spaces, there is always a chance for rug-pulls. It is a situation when the developers of a decentralised finance project launch a new token and then abandon it after stealing the investors’ money. 

DeFi apps also allow you to trade using cryptocurrencies. Let’s learn more about this matter. 

DeFi trading

Decentralised finance apps have made it easy for investors to trade cryptocurrencies. If you are a trader on this platform, you can easily open an account on a cryptocurrency exchange with just a few clicks. 

Each exchange has its own order book indicating what assets the traders buy and sell. 

There are two ways you can make deposits and withdrawals on these exchanges. They are:

• Depositing using fiat

Very few cryptocurrency exchanges, especially in the US and UK, accept fiat currency as deposits or a mixture of fiat and crypto. 

• Depositing using crypto

The majority of exchanges around the world accept cryptocurrencies for trading. 

Remember that when you want to trade using an exchange that only accepts cryptocurrencies as payments, you have to use a third-party crypto wallet to deposit your assets. Furthermore, you have to buy cryptocurrency from a third-party source and deposit it in your wallet. Then you have to transfer it to the wallet that the crypto exchange provides. 

Now that you know of the ways crypto exchanges take deposits, let's explore how to trade crypto using Binance. 

How to trade cryptocurrencies using DeFi apps?

Below are the steps that you can follow to trade crypto coins using Binance:

1. Go to the Binance website and open an account
2. Review the rates and terms and click on ‘Register’
3. Complete the captcha and e-mail verification process
4. Deposit funds in your account 
5. Go to the ‘Trade’ option and select between Basic or Advanced

After this step, you will see all the current market details. You are now ready to start trading. 

The best DeFi trading apps are:

• Binance
• DeFi Swap
• Battle Swap
• Kraken
• eToro

DeFi options

Options in DeFi are a type of derivative contract that gives you the right but not the obligation to buy or sell an asset at an already set price at a particular expiration date. The right to buy the underlying asset is the “call” option. The right to sell is the “put” option.

These are basically contracts which allow a trader to speculate about the future price of any underlying asset. This price can be settled either in cash or in any crypto coins. 

When it comes to crypto options, they generally have two styles:

• European

In this style of options trading, you can execute the contract only at the time of its expiry. 

• American

This option lets you execute the contract any time before the expiry date. 

There are a lot of platforms that will provide you with options trading. They are:

• Binance
• IQ Option
• Ledger X
• Quedex
• FTX and many more

Let’s take the example of Binance for a better understanding. For crypto options trading, you can follow these steps:

1. Open the Binance app and go to the Futures tab
2. Select ‘Options’ and choose the duration
3. Choose between a Call, Put or Vol order
4. Check the order details and click on Confirm

You are ready to use trading options on Binance. 

The advantages that decentralised finance applications provide to their users, specifically while trading, borrowing and lending, are many. These benefits will cause a huge influx of new investors and traders