By Mauricio Di Bartolomeo, co-founder of Ledn
For any new asset to perform similarly to traditional money, users must be able to perform all of the same financial services that they are already used to. One of the most important services is the ability to lend to earn passive income or borrow in a time of need. For as long as money has been around, so have lending markets. This remains true today, even in light of new digital currencies such as Bitcoin.
Bitcoin has seen lending platforms pop up over the years, but many of them have subsequently collapsed. Indeed, Sam Bankman-Fried has been found guilty for his role in one of the most infamous financial fraud cases in US history. The failure of these platforms can be attributed to opaque business practices enabled by a lack of oversight and internal risk management. Moreover, with the environment that free stimulus cheques and zero interest rates created, end-users had little regard for doing diligence on how the yield they were getting paid came from — everyone was in a mad dash for profit.
This environment allowed terrible people to do bad things. Operators had little safeguards like ring-fencing of risks to separate lending operations from other products and services, and there was little to no way for clients to understand or keep tabs on how companies were operating. The industry’s…