Are there threats to banks in DeFi lending?

Currently, DeFi lending does not pose any serious threat to banks. However, this is bound to change with the elimination of barriers like over-collateralization and asset volatility.

Lending volumes are still small, but they are growing steadily – DeFi lending and borrowing comprise less than 20% of the entire DeFi market cap.

It’s difficult for DeFi users to assess the actual risks and returns. This is primarily because of the lack of consumer protection laws, the complex and fast-evolving nature of DeFi, and the use of different cryptocurrencies regarding purchased tokens, collateral deposited and interest earned.

Currently, DeFi lending is focused on funding the purchases of other cryptocurrencies. Besides, DeFi lending’s overcollateralized applications reduce the threat to banks.