Asset lending is a practice that dates back to the early days of modern banking and has served as a pillar for economic growth to this day. It generally comprises two parties: lenders and retail borrowers. The former will lend a specific asset — almost always cash loans in traditional finance — to the latter as a credit on the condition that borrowers return or repay the investment to the lender in an agreed-upon timeframe. In virtually all circumstances, lenders receive compensation for providing borrowers with their capital; therefore, interest is often levied in addition to the loan amount.
What is Crypto Lending and Borrowing?
Similar to traditional lending, crypto lending involves the deposit of cryptocurrency that is loaned to borrowers in exchange for recurring interest payments. Payments are often provided in the form of a cryptocurrency that is deposited and compounded daily, weekly, or monthly.
In a previous article, we highlighted crypto lending and borrowing as one of six significant macro-categories of decentralized finance and provided a general overview of its tools and services. In this article, we’ll share the lending and borrowing opportunities our users can leverage through OmniDex, our Telos Fuel partner. If you’re already well-versed in crypto lending and borrowing, click here to visit the OmniDex platform and get started. Please note that this is not financial advice, and all users should thoroughly research the risks associated with any DeFi protocol.
If you’d like to learn more about what OmniDex offers, keep reading!
What is OmniDex
OmniDex is Telos EVM-built decentralized platform which offers a secure, transparent and trustless peer-to-peer (P2P) network for cryptocurrency lending. The platform allows users to leverage their digital assets to unlock liquidity and earn interest. Furthermore, borrowers can get access to collateralized crypto loans quickly and efficiently.
Earn with OmniLend
Want to provide liquidity for crypto loans? OmniLend is a lending protocol that facilitates cryptocurrency-backed loans. The platform gives users access to liquid capital and a secure borrowing experience.
The OmniLend system allows borrowers to collateralize their digital assets in exchange for loan limits, while lenders can benefit from competitive interest rates on loan investments. The process combines automated risk assessment models with smart contracts, enabling lenders to source quality borrowers and manage their portfolios efficiently. In addition, by utilizing the security of distributed ledger technology, OmniLend offers both parties a transparent and reliable way of engaging in crypto lending transactions.
Interest Earned Through Lending
Lenders can deposit as much or as little of an asset as they wish into OmniLend. The interest accrued is determined by the utilization rate of the borrowed asset. The greater a reserve’s utilization, the better the return for depositors. Each asset has its supply and demand market and APY (Annual Percentage Yield), which typically changes over time. The information page for a particular market contains details on the market utilization rate, current APY, and other pertinent information.
Borrowing Through OmniDex
OmniLend allows you to access liquidity without selling any of your current assets. This implies you may simultaneously reap the benefits of numerous investments’ potential returns by providing assets as collateral. Users commonly utilize borrowing to leverage their assets, pay unforeseen bills, or pursue new investment possibilities.
Understanding the Omni Health Factor
Your OmniDex health factor is important data that impacts how much you can borrow without fear of being liquidated. It denotes the security of your deposited assets, which may be used as collateral against the borrowed assets and their underlying worth. The greater the value, the more secure your savings are against a liquidation situation.
If your health factor falls to 1 or lower, it will result in the liquidation of your assets to repay the lenders. A health factor of 2 indicates a 50% drop in collateral value relative to borrowed funds and will also likely result in liquidation. On the other hand, if the value of your collateral increases compared to your borrowed assets, your health factor will also increase, thereby decreasing the chances of being liquidated.
Each token has a distinct set of risk management rules that regulate how it is used as collateral and how it may be borrowed. These parameters establish each asset’s loan-to-value (LTV) and liquidation levels. The protocol applies these criteria, together with the assets you are using as collateral and the assets you are borrowing, to calculate your health factor.
Interest Rates: Stable vs. Variable?
The interest rate you pay to borrow assets is determined by its supply and demand ratio. If you opt for a variable interest rate, it will fluctuate over time. If you want to be more certain about the amount of interest you will pay, you may use a stable interest rate instead. Short-term, stable rates function as fixed rates but may be rebalanced to accommodate market fluctuations. As a result, borrowers a result, borrowers can repay their loans and related interest at any time.
Know the Risks
Cryptocurrency lending and borrowing is a powerful financial tool for those looking to invest, speculate or access quick liquidity. However, it’s essential to understand the risks associated with leveraging crypto as collateral before diving in. Knowing the potential risks and rewards can help users decide whether cryptocurrency lending and borrowing are right for them.
OmniDex is a fully decentralized DeFi platform built on the Telos EVM. The platform offers a diverse range of DeFi products, such as farming, staking, swapping, lending, and borrowing. The exchange incentivizes users to provide liquidity with CHARM, the native currency example; borrowers on the lending platform pay lenders either a stable or variable interest rate for taking out a loan on the forum. These fees are paid out in the borrowed token, enabling lenders to earn USDC and TLOS along with several other tokens.
Built by members of the Telos ecosystem, for the Telos ecosystem OmniDex is dedicated to bringing DeFi to the lightning-fast Telos EVM.
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