Outlier Ventures: Analyzing Unsecured Lending Protocols and Market Status
Analyzing the market status and protocols for unsecured lending at Outlier Ventures.
There is a huge growth potential in the DeFi field, especially in the decentralized lending sector, which is the motivation behind creating the current leading decentralized uncollateralized lending protocols. Achim Struve, a researcher at Outlier Ventures, compares the performance of uncollateralized lending protocols in terms of fund adoption, token valuation, incentive impact, and marketing advantages, outlining the current state of the uncollateralized lending market.
Token designs for unsecured lending agreements showcase different methods and value accrual mechanisms, with all protocols providing governance power through their tokens, but not all protocols providing direct revenue sharing through collateral. Nonetheless, all token designs will derive some form of value growth from product adoption.
In terms of FDV valuation and TVL, Centrifuge is currently the most successful unsecured lending protocol. Although they have also had some defaulted loans, their strength lies in their innovative approach of tokenizing RWAs. Overall valuations of all native unsecured lending tokens remain below the cryptocurrency market. The industry suffered too many partial or complete collapses during the bear market of 2022, leading to a decreased trust in the industry.
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In terms of total FDV MC, the unsecured lending industry is still small compared to the entire DeFi industry (0.7%) and the entire cryptocurrency market (0.03%). Given this, decentralized unsecured lending still shows significant growth and innovation potential, given the industry’s huge relevance to traditional finance and the market trend of optimizing capital efficiency. It just needs more time to rebuild trust and innovate to achieve this goal.