The Art of Borrowing and Lending Money
Should banks lend to people knowing they may struggle to repay the money back? Should interest be charged? And how can decentralised lending solve the issue of bringing equality of money back to people who are discriminated against with current systems?
In our latest episode on YAP Cast, we turn our attention to the art of borrowing and lending money and whether it’s a good idea to borrow or lend. To help us answer this, we’re joined by Leo Cheng, Project Lead of C.R.E.A.M. Finance, a decentralised lending protocol, who covers a few of the areas below.
The World of Borrowing and Lending
It’s not often a topic discussed, the issue of borrowing and lending money. Yet, most of us do it all the time and usually with people we don’t know, like a bank for instance. Our own language also reinforces how uncomfortable we are with the act of borrowing and lending as many fail to distinguish between borrow and lend. In English, borrow is sometimes used instead of lend. There are lots of reasons why this is, but it could be down to the fact that people don’t place a value on the act of lending.
Another area to consider is the world of interest. Charging interest is the oldest financial practice, but why would someone charge someone else interest when the only reason they are borrowing in the first place is because they have little money to begin with? A loan enables someone to buy a car, study, get on the property ladder, or start a business, and that comes at a cost. The trick, though, is ensuring that you get a loan from the right lenders, staying away from those who charge unreasonably high interest rates.
What is Programmable Money?
Pioneered by the invention of smart contracts that were popularised by Vitalik Buterin’s Ethereum, programmable money ensures that a particular behaviour is going to happen once it has been programmed into a smart contract.
With the current finance system, people have to ring up their bank to see what happened if something doesn’t occur the way it’s supposed to. But, the use of smart contracts enables those involved to see exactly what’s happened that is fully automated.
What are the Benefits of Decentralised Lending?
A decentralised lending protocol is one that doesn’t have a central party controlling it. Instead, it relies on software to run it autonomously. When it comes to lending with a decentralised protocol, the money that is placed in it is then calculated to determine the amount of interest a user will receive.
On the other side, if someone is looking to borrow money, the protocol decides how much that person can borrow based on how much they deposited. Compared to a traditional savings account or an interest bearing account that generates between 0.1% or 0.2%, a decentralised lending protocol can give between five and eight percent of interest. Another benefit is that investors can dip in and out of a decentralised lending protocol as often as they wish where they can continue enjoying the high interest rates on offer.
We hope you enjoy the Story of Money by YAP Cast.
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