DeFi lending protocols are decentralized financial applications built on blockchain networks that allow users to lend and borrow cryptocurrencies without intermediaries like banks. The key differences from traditional banking include:
- Decentralization: No central authority controls the protocol
- Permissionless: Anyone with a wallet can participate
- Transparency: All transactions are recorded on-chain and publicly visible
- Global Access: Available 24/7 to anyone with internet access
- Programmable: Smart contracts automate lending/borrowing processes
- Over-collateralization: Borrowers must provide collateral worth more than the loan
Traditional banks rely on credit scores and legal frameworks, while DeFi protocols use smart contracts and over-collateralization to manage risk.
