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Common problems facing token issuers, centralized and decentralize exchanges, and liquidity providers are:
- It is currently incredibly difficult, if not impossible, to borrow the majority of crypto-currency assets. For major market capitalization tokens, institutional borrowers like Genesis Trading and Anchorage Digital are available, albeit at a high cost of capital and limited accessibility.
- In DeFi, protocols like Compound and Aave allow users to borrow non-stable crypto-assets over-collateralized. However, the utilization of non-stable liquidity pools remains notably low, and is likely due to poor capital efficiency and liquidation risk.
- Protocols like Maple and TrueFi have made uncollateralized loans of major capitalization tokens available to institutions, but only stable crypto-assets are available for borrowers.
- Lastly, several decentralized protocols, such as Rari and Euler, are attempting to expand the over-collateralized asset lending markets to hundreds of tokens. However, this has led to a number of major exploits wherein borrowers manipulated oracles using flash loans.
Outside of market makers borrowing from these protocols, there is little in the way of sourcing capital for centralized exchanges. Several decentralized exchanges, such as Uniswap and Sushiswap have addressed this issue by employing automated market maker algorithms to attract liquidity providers. However, empirical research has found that few liquidity providers earn enough fees to offset impermanent losses incurred.
To summarize, the crypto-asset market currently lacks a decentralized borrowing and lending platform for non-stable crypto-assets that is highly capital efficient and accessible for many token issuers.