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Fintech

DeFi: Beware of the liquidators

Liquidators are the hidden predators lurking in decentralized finance protocols waiting to snap up collateral at big discounts from the unwary.

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A core function of the banking system is to enable people lucky enough to have some money to earn interest by lending it out to users who can afford to borrow it.

Banks are regulated principal intermediaries between the two groups. They take a margin between the cost of their own liabilities paid to depositors and the charges on their loans to borrowers. That margin pays for credit underwriting and other infrastructure, expected losses and, in theory, leaves a surplus for banks’ shareholders. The system has evolved over centuries.

It is now broken.

Many potential borrowers are excluded. Depositors are being paid nothing in nominal terms and charged negative real rates as inflation surges.

As institutional interest in digital assets accelerates, investors have a broader appetite for crypto assets
Guido Buehler, Seba Bank
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That’s why decentralized finance (DeFi) has taken off in the last year and is steadily drawing more and more capital out of the conventional financial system with the new promise of yield, as well as hopes for capital appreciation in cryptocurrencies.

On October 13, Seba Bank, a Swiss Financial Market Supervisory Authority, FINMA, -licenced, Swiss, digital assets banking platform, launched Seba Earn, which it describes as an institutional-grade solution to enable investors to earn yield on their crypto holdings in permissioned DeFi protocols, as well as from lending Bitcoin and Ethereum directly with Seba Bank.

Guido