How has Credit Been Built On-Chain?
In DeFi, trust in intermediaries is replaced with code. Since 2019, this fundamental shift has led to entrepreneurs building different products to help in building an alternative financial system:
Peer-to-Peer Credit: In 2019, ETHLend started the Peer-to-Peer lending mechanisms, which was the first introduction of yields and credit on chain. This enabled users to directly lend out assets to other users without the requirement of a financial institution in between.
Peer-to-Pool Credit: AAVE, Compound and Maker then introduced the Peer-to-Pool lending, allowing users to lend a pool and the borrow from it using their deposits as collateral.
Rise of Credit segments: As generalized credit products began to find product-market-fit, specific credit segments emerged:
Real World: Focused on using the on-chain models to provide credit in the real world, eg: Maple.
Fixed Rate: Here, the interest rate stays the same for the loan’s entire term.
RFQ: RFQ or Request For Quote, based credit returns to a peer-to-peer mechanism in order to fill borrow rate bids. Morpho Labs pioneered this by building a peer-to-peer layer over existing lending pools or AAVE and Compound
Recursive Credit (or looping): To increase capital efficiency, recursive credit focused on borrowing against collateral, then depositing again to borrow more, and repeating the cycle.
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