Binance to Launch Margin Lending Services, Acting Purely as Matchmaker

Binance has announced that in two days (August 28) they will be launching lending services for Binance Coin (BNB) and Tether (USDT), August 26, 2019. Lending and borrowing have become the top crypto use case in 2019, with DeFi on smart contract platforms – especially Ethereum – popping significantly. 

Margin Lending Services

Binance will be offering to lend for BNB and USDT, which makes the most sense since margin borrowers would prefer to borrow an asset that can be easily exchanged for whatever they want to buy. BNB and USDT have the most number of tradable pairs, making them a perfect match for margin lending.

BNB will be offered at a 15 percent annual return while USDT can be lent at 10 percent annually. Considering the fact that the one year United States Treasury yield is a mere 1.77 percent at the time of writing, this is a huge premium for those are willing to bet that Tether will maintain its peg and continue to gain market confidence.

Binance has guaranteed an interest payment no matter what happens to the market, which may not be the best idea from a financial company that doesn’t have the backing of statutory authority or investor protection rules. It is unknown how Binance will deal with the issue in the event of a default or inability to pay interest due.

Initial Reactions and CZ Clarification

Cryptocurrency enthusiasts have had mixed reactions (as always) to Binance’s announcement, but it seems like most people are not too happy with Binance.

Bitcoin Cash developer Amaury Séchet a.k.a deadalnix, was critical of the launch of a centralized lending service, comparing the current ecosystem revolving around lending services to the global economy before the 2008 recession.

Crypto started after the crisis of 2008. It's ecosystem is now working hard to reproduce it. https://t.co/uwniFn6enY

— deadalǹ͔͜͡i͎̜͖͗̎͞x̛̳̠̤̥̦̉̊̕̕ (@deadalnix) August 26, 2019

Anthony Sassano, a proponent of Ethereum, was critical of the fact that Binance was guaranteeing an interest rate and payment. While Ethereum does enjoy a lion’s share of crypto lending, most of it is done in a decentralized manner with overcollateralized reserves for each loan.

https://twitter.com/sassal0x/status/1165969481237065730

Changpeng Zhao, the founder of Binance was quick to hit back, claiming there would be no problem as Binance is simply acting as a matchmaker between margin lenders and borrowers over their exchange. Nonetheless, if something were to go wrong due to a systemic issue or a large number of defaults, Binance will be the ones held accountable.

https://twitter.com/cz_binance/status/1165970831094116352