Often, the cryptocurrency market is subject to periods of extreme downside volatility. Long-term crypto holders can suffer particularly during downturns, because their plans have been turned upside down and they may not know how to act. Lending & Single-Asset Vault could be a good way to balance out temporary losses and accumulate a few extra coins, while waiting for a market recovery.
Gate.io Lending & Single-Asset Vault is a type of Liquidity Mining, but slightly simpler and with operational differences. Liquidity mining involves two coins, and users earn income from transaction fees and incentives. Lending & Single-Asset Vault involves a single coin, and users earn from lending interests. The interest rate varies according to the demand and supply of currencies. Specifically, when the liquidity is insufficient, the interest rate will rise to encourage lenders to deposit. On the contrary, when the liquidity is abundant, the interest rate will fall to encourage borrowers to borrow. There should always be some kind of balance in the pool, to make it sustainable.
In a nutshell, Lending and Single-Asset Vault is a kind of hybrid between a CeFi and a DeFi lending service, as it combines the ease of use of the former with the decentralization of the latter.
This financial product is similar to what traditional banks do nowadays, when they take money deposited by customers and lend it to others (borrowers) in exchange for a repayment of principal plus interest. In our case, the difference is that the “liquidity pool” acts as a bank, and we as lenders. It is obvious that on the other hand there is a person who borrows the funds, but all of this all happens in a decentralized way, meaning that nobody knows each other’s identities. Gate.io, by offering this type of lending service, allows users to deposit their assets into a pool and to earn passive incomes.
This mechanism is handled by smart contracts, which aggregate users’ token deposits, determine the interest rate using algorithms based on market supply and demand, and then lend tokens based on the borrower’s collateral assets. After users have successfully deposited their funds, borrowers will then lend funds from liquidity trading pools. They will repay users the principal and a certain handling fee as loan interest. At that time, users can redeem the principal in the liquidity trading pool and gain trading fees as revenue.
This mechanism is a powerful innovation, as it allows even small investors to access financial instruments that, in the classic financial world, can only be reached by medium-large investors. As an example, around 1.7 billion adults worldwide are unbanked - don’t have an account at a financial institution or through a mobile money provider - which means their capital doesn’t accrue interests and can’t outpace inflation.
Most DeFi platforms are quite complicated for those who are not yet familiar with this industry, so they are not suitable for newbies. Interacting with these types of platforms requires the user to carefully self-manage funds, which can be lost if they make a small mistake. Gate.io makes everything much easier, as it takes care of the choice and preparation of the best products on the market, and provides the user with the possibility to access these products and earn yield in a few simple steps.
In addition, the user has the opportunity to access multiple products in a single platform. Normally, when interacting with DeFi, a person must continually move to different platforms and connect his wallet to each of them. This process can be cumbersome, slow, and can increase the risk of making mistakes. Using the Gate.io platform, however, the user can interact with more than 300 single-asset lending liquidity pools all at once.
Lending & Single-Asset Vault is an effective product to protect the portfolio from sudden price drops that occur in the market, as the loaned funds are repaid with an interest that increases the number of coins held. It is recommended for people who do not want to deal directly with DeFi applications, which can be difficult to use for novices. However, it is important to say that, like all financial products, the one we just described is also subject to risks. In fact, the lender is in any case exposed to changes in the price of the loaned currency and also to a possible insolvency of the borrower.
Additional information is available in the Blog section of Gate.io.