This article is Sponsored Content written by a third-party for Calyx Token
Before the advent of DeFi, the bank was the traditional system used in keeping funds and assets. We entrusted our money to traditional financial institutions during this strict bank era because we believed it got all the security our assets needed in their care.
However, over time, we began to see some limitation to banks, how they got the exclusive power over us, to close down our accounts, share our information with the authorities without consent, and do whatever they liked with our assets.
Then DeFi came into existence to give us the power over our money and assets while keeping us anonymous and maintaining an encrypted and immutable peer-to-peer model of keeping records of our transactional activities.
DeFi protocols like lending and borrowing, legacy and liquidity staking, and yield farming have been among the offerings we needed over banks. However, some setbacks have made the crypto community think otherwise. Some of them include impermanent losses, high market volatility, and DeFi insecurity, among other challenges we see often.This article explains DeFi Lending, some challenges it faces, and a unique solution—Calyx Token (CLX). See more below.
What is DeFi Lending?
DeFi lending is a mechanism that allows you to supply liquidity using cryptocurrencies to a decentralised exchange or protocol. Smart contracts control transactions on the protocol and compound interests, including rewards associated with DeFi lending, in an automated market maker (AMM) algorithm.
Parallel to DeFi lending is borrowing. Borrowers supply collaterals with supported tokens—if multi-chain—they may supply collaterals with varieties of cryptocurrencies. This is done to maintain a balance of funds in the liquidity pool from both the lenders and borrowers.
While DeFi lending may present sultry benefits, some demerits have sparked criticisms in the crypto community. We’ll see them next and learn about a unique solution to them.
What Are the Challenges in DeFi Lending?
1. Smart Contract Loopholes
Smart contracts are pretty much codes designed by someone, and there are chances that there could be a ghost glitch capable of compromising the protocol. Bugs in smart contracts have led to astronomical losses in the past, and this has encouraged compulsory DeFi audits to ensure dApps and smart contracts are tamper-proof to vulnerabilities.
2. Impermanent Losses in Automated Market Makers (AMM)
Sometimes when you provide liquidity to a DeFi lending pool, you may spot a difference in the value of the crypto you deposited and what you see in the protocol after calculating the transaction’s net value. This situation is called impermanent loss, mostly caused by crypto volatility, and is common with smart contract-run market makers called AMMs.
3. Increased Market Volatility
Market volatility is one of the causes of impermanent losses in AMMs. The crypto market is so unpredictable that anyone could lose their funds in a blink of an eye or make more money the same way.
4. Low Liquidity
Low liquidity has led to the closure of many DeFi lending startups. We may attribute this situation to improper planning and poor fundraising campaigns. Low liquidity can lead to relinquishing reserves, which could be disastrous if the lending and borrowing protocol is not balanced.
A Unique Solution To DeFi Lending Problems
Calyx Token is a multi-chain protocol planning to address some DeFi lending challenges. It will create an ecosystem around its utility coin—CLX—which it will use to power upcoming integrations and products such as the CalyxSwap and CalyxDAO.
Calyx Token’s multi-chain approach will facilitate constant liquidity provision as users will be able to deposit varieties of tokens supported on the exchange and withdraw the tokens they desire. This mechanism will eliminate the low liquidity common in many DEX protocols.
CLX will offer incentives such as shared fees from the CalyxSwap to the CalyxDAO community. The token holders may also lock in their assets and earn appreciable interests over time.
Calyx Token is currently running presale at a low price of about $0.0006, which will be fixed until launch.
Learn more about Calyx Token (CLX) below: