Crypto Collateralized Loans Sees $100 Million Mark For the First Time Amid Bullish Crypto Trends


The cryptocurrency market has been soaring since the April 2nd price movement, and since then the bullish trends are only getting stronger. With Bitcoin getting past $8,000 last weekend, merely days after breaking past the $6k mark, many believe that we have entered the next bull cycle. All the key metrics be it the trading volume, the price movement or the sentiment of the market, points towards the bull run.

Amid the crypto market price surge, the outstanding volume of crypto collateralized loans has also touched the $100 million mark for the first time. These crypto-collateralized loans are backed by four major DeFi lending projects which include the names of MakerDAO, Dharma, Compound, and dYdX. All these four decentralized projects are Ethereum network-based, which have been designed to create automated self-loan processes.

Maker Leads The Path

Among the four major players backing the crypto-collateralized loans, Maker has the biggest share of the pie with more than $432 million worth of ether locked up in its collateralized debt positions (CDPs), which allow Maker to offer DAI stable coins as loans to the users.

Once a user has been granted a loan in DAI stable coins, the collateralized Ether gets unlocked and the associated amount with the loan gets burned permanently, which enables the DAI token to maintain a stable price of 1 US Dollar.

As per the information available on the Ethereum loan explorer website LoanScan, the equivalent amount of outstanding loans distributed by Maker stands at $85.4 million. The second position is taken by Dharma with an amount of $8.3 million and the third position is taken by Compound with $5.5 million in loans. dYdX only accounts for $1.1 million to the total contribution.

The Amount of Outstanding DeFi loan Volume Coincide With the Total Amount of value locked in DeFi Projects

The total amount of outstanding DeFi loan volume of $100 million also coincides with the total amount locked in DeFi projects. Apart from that the total volume of Bitcoin on the Lightning network and the total amount of Ether locked in Maker CDPs also crossed $500 million marks for the first time.

The rise in the amount of DeFi projects comes on the heels of the crypto market entering a bullish cycle, with Bitcoin and major altcoins soring past their key market resistance. Ethereum which was struggling at $170 mark barrier is currently trading at around $263 with a rise of 15% in the last 24-hour chart. The trading volumes are at an all-time high.

The reason for the popularity of DeFi can be attributed to the bullish sentiments of the market, as the users are looking to leverage DeFi lending platforms to buy more crypto in the run-up to the bullish nature of the market. However, it is to be seen whether the Maker platform can maintain the upper hand and loan volumes, and also whether the current bullish trend can last and accordingly win over a new wave of lasting users for DeFi projects.

Maker's CDP Based DAI loans Interest Rate Surge By 20%

The DAI stability fee (DFS), which is the amount of interest charged from the customers who take the DAI loans have surged by more than 20% since the start of the year 2019, mainly because the MKR holders have asked for the high interest rates. The main reason for increasing the DFS rate is to ensure that the DAI token can attain a value equivalent to one US dollar.

The prices of most of the stable coins including DAI token has been trading below the pegged price of $1, so by increasing the interest rate, the number of CDP owners closing out their position would increase as well, which would result in the burning of DAI tokens and bringing the price back to $1.

The increased interest rates do seem to have an effect on the prices of DAI, taking it closer to the value of $1, however, at the same time, the increased DFS has also been troublesome for users who haven’t used their CDPs to long crypto but rather for regular purchases.

The DAI interest rate currently stands at 19.5, and this could be an area of concern for the DAI token holders in the US, where there have been ongoing talks to make interest rates higher than 15 percent illegal. Although the DAI is designed in such a way that it fluctuates as per the circumstances, it is to be seen whether the community has to push back towards an interest rate below 15 percent.

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