Maple Finance CEO: Separating risk from lending saved DeFi from market crash

cointelegraph.com:

Maple Finance co-founder and CEO Sid Powell says that transparency has been the saving grace of decentralized finance (DeFi) amid the prolonged crypto market slump.

Speaking to Cointelegraph on the sidelines of Converge22 conference in San Francisco, Powell noted that throughout the crypto winter, DeFi has continued to operate as intended while centralized finance (CeFi) has become “pretty inactive.”

Powell suggested that during the market crash, CeFi lenders hadn't properly "battle-tested" and weren’t “prepared to liquidate clients," wanting to maintain client relationships.

“As the price of Bitcoin was tumbling, they didn’t want to be sending out margin call letters or email hundreds of clients because they wanted to maintain client relationships,” Powell explained.

He notes that where CeFi firms are still lending, “they’re doing so on a 1:1 collateralization.”

On the other hand, “DeFi is much more transparent,” he explained. In overcollateralized DeFi models, “people just got liquidated as BTC and ETH dropped. That happened automatically.”

“In DeFi you can’t get away with letting one borrower be half of a lending pool because people see that and they question the risk management there.”

“All of the loans are visible, so you had to be much more careful of who you underwrote and how you underwrote them,” Powell said.

Powell also added that CeFi businesses were diversified with trading and prime brokerage, which they thought was a strength, but all of their business lines impacted each other:

“But if a CeFi lender ran a pool on Maple, that pool would not be affected by what is happening in the trading part of that business [...] It’s restricted and siloed to just the lending activity.”

Related: Decentralized finance faces