• Bitcoin lending platforms have experienced a series of issues in recent years, including the fallout of the Terra/Luna crash, liquidity crunches, and market manipulation accusations.
• The mainstream media has blamed these issues on Bitcoin itself, but the real fault lies with custodial lending platforms, which are poorly conceived, developed, and managed.
• Bitcoin is actually super collateral and should be treated as such, but lenders must understand how yield is generated in order to properly use it.
The Bitcoin lending space has been through a rollercoaster of highs and lows lately. The crash of Terra and Luna, the liquidity crunch resulting from the sustained price drawdown, and the various accusations of market manipulation have all taken their toll on the industry. This has led to massive losses, bankruptcies, and a complete reshaping of the lending market.
The mainstream media has, as usual, blamed these issues on Bitcoin itself, painting it as an unstable and unreliable asset. But in reality, Bitcoin is not the culprit here. Custodial lending platforms, which are owned and managed by private entities, are the true security holes. Although the code may be well-written, properly audited, and verifiably secure, the platforms can still contain poor incentives if they are not designed properly.
It is becoming increasingly clear that those involved in the “bitcoin lending” industry do not fully understand how yield is generated. Bitcoin is actually super collateral and should be treated as such. It is only by understanding the process of yield generation that lenders can make use of it properly.
The market appears to be at its historical bottom, both in terms of volumes and public confidence. But this does not mean that Bitcoin is any less attractive as a collateral asset. As long as the proper precautions are taken, Bitcoin can still be a useful and reliable tool for lending. Rather than shying away from it, lenders should take the opportunity to learn more about how to use it correctly and safely.