Hashstack Shifting the TradFi & DeFi Paradigms with Under-Collateralized Loans

Hashstack Shifting the TradFi & DeFi Paradigms with Under-Collateralized Loans

HashStack is aiming to bring a paradigm shift to the traditional finance (TradFi) and decentralized finance (DeFi) ecosystems by making under-collateralized loans accessible to both the unbanked and underbanked members of the society.  

HashStack Fostering Financial Inclusion 

In the traditional finance (TradFi) system, it’s currently quite difficult or even impossible for most people to access loans, as a significant portion of the global population  (more than one billion people) do not meet the requirements to secure loans in the centralized credit market.

For a user to secure a loan in the TradFi world, the financial institution will need to run a thorough check on their credit score to determine their collateral and once the result is unsatisfactory, the applicant’s request will be declined.

While the coming of decentralized finance (DeFi) has made life a bit easier for the masses, by making loans readily accessible to users, without lengthy loan processing times, and absurd credit checks to determine an applicant’s eligibility, loan over-collateralization remains a serious issue in this trustless system.

For the uninitiated, loan over-collateralization simply means putting up an amount that far exceeds the loan value one is looking to borrow. Most lending platforms employ this system as a means of security.

Though over-collateralized loans help in maintaining a trustless system and make it harder for borrowers to default, this method is quite inefficient because it does not serve a huge section of the target audience – the underbanked and unbanked, who are supposed to be the main beneficiaries of decentralized finance. 

It must be noted that the primary objective of DeFi is to provide an alternative avenue for users to access loans without being subjected to rigorous requirements and lengthy checks. However, the credit market in this industry is defeating this purpose with its high collateral-to-loan ratio.

Due to the high demand for crypto collateral, it is difficult for some people to access high loan amounts and this is a major flaw of DeFi to date. 

The over-collateralized loan system is designed for high-end borrowers. What about the average borrowers whom the system is supposed to help? 

Over-collateralization of digital assets prevents many borrowers from accessing DeFi loans and this hampers the growth of the industry. 

One way to make DeFi loans more accessible to a wider audience is by lowering the requirements for collateral. This way, there will be a level playing field for everyone.

For the crypto and DeFi markets to achieve global adoption, a working alternative to over-collateralized loans must be provided and this is where under-collateralized loans come in.

Hashstack the Future of Under-collateralized Lending 

Under-collateralized loans are partially collateralized. This means that the provided collateral does not fully cover the loan secured by the borrower. 

Peradventure the borrower defaults, the platform will seek other ways to mitigate risk or recover the funds. Under-collateralized loans offer borrowers convenience and significantly lower the barrier to entry into DeFi.

However, on the global scale, the number of under-collateralized lending platforms is quite a few compared to their over-collateralized counterparts.

Hashstack, a DeFi lending protocol, has taken the bull by its horns to offer DeFi market participants a whole new experience via its innovative under-collateralized lending solution.

Hashstack is the world’s first autonomous lending solution in the DeFi space. With Hashstack, users can enjoy non-custodial, under-collateralized loans of up to a 1:3 collateral-to-loan ratio.

In essence, a borrower can secure a loan of up to 300 percent of their collateral, enabling just anyone to access capital loans for huge projects at any time. 

The emergence of platforms like Hashstack is a strong indication that the DeFi sector is evolving and ready to replace traditional finance by granting access to loans and other financial services inaccessible to a large number of people in centralized finance.

Ogwu Osaemezu Emmanuel

Ogwu Osaemezu Emmanuel is a graduate of Mass Communication and Media Studies. He joined the blockchain movement in 2016 when a friend of his introduced him to an investment platform accepting bitcoin. He has never looked back since then. Emmanuel believes the world needs real change and freedom from poverty. He sees crypto and the underlying distributed ledger technology as the catalyst to a better future for all.