MELD: Access Cash and Crypto Loans with Ease
Blockchain technology and the crypto ecosystem continue to prove that it is the change our global financial system has always yearned for.
There have been a series of innovative blockchain-related projects rejuvenating and revolutionizing several industries and in this article; we will be looking at a project that is changing the financial industry for the better.
Financial System
A financial system is generally referred to as a set of institutions that allow the exchange of funds, such as banks, insurance firms, stock exchanges, etc. Financial systems extend their reach to firm, regional, and global levels.
In the financial system, borrowers, lenders, and investors exchange funds for financing initiatives, either for consumption or efficient investments, and to earn returns on their assets. The financial system also has a set of rules that these borrowers and lenders use to determine who finances projects, which project is to be financed, and the terms of the deal.
This traditional system of finance appears to be living out its last days as the unbearable flaws in it continue to be pointed out on a daily basis. The financial crisis of 2008 would be the mighty last straw that broke the camel’s back as it sparked up a revolution that has gained global popularity today.
Digital Technology
The current financial sector is well on its way to incorporating digital technologies into its daily operations as they have been forced to rethink the way they do business.
Traditional banking is mainly characterized by large physical infrastructure and the provision of “face-to-face” service to customers. The strategy of traditional financial system has been to provide very close, humane treatment to its customers, as well as personalized attention. However nice this initiative has seemed, its disadvantages far outweigh its advantages. With traditional banking, clients are often required to travel to physical offices, sometimes from long distances in order to finalize processes and transactions before they can obtain cash, or other services, which can be very frustrating. Add to it, the shadowy and shady regulation from governments and the tedious and impervious nature of customer attendants of these institutions, world war 3 might just start out from one of these facilities someday.
Digital technology can help financial services enhance their customer experience in a variety of ways, which includes easing banking processes and enabling a better financial situation for customers; borrowers, and lenders in particular. It can enable standardization, automated functions, swifter processes, and insight-driven functions like the adoption of Artificial Intelligence services to better customer experiences.
Blockchain Technology
Blockchain technology distinguishes itself from all other digital technologies that have impacted the finance industry. It has completely redefined our economy and transformed the way transactions are processed.
Blockchain is a distributed technology that functions as a decentralized database and ensures the full protection of its financial data. It uses advanced encryption algorithms to protect data and validate transactions.
Smart Contracts are the most effective Blockchain application in the financial world. It aids in the automation of commercial agreements and transactions. Blockchain eliminates the need for middlemen because smart contracts are more secure than traditional contracts and this is what MELD is using to redefine the financial industry.
MELD
MELD is a decentralized and trustless lending protocol built on the Cardano Blockchain using smart contracts and governed by the MELD token. It provides a fast, safe, and transparent set of tools for anyone to lend and borrow crypto and fiat currencies.
Lending and borrowing in the current traditional financial systems can be frankly ineffective due to its sluggishness, complexity, and bureaucratic processes. Consumer lending is exploitative and often contributes to higher levels of indebtedness, while commercial lending is mainly only accessible to certain elites.
Decentralized Finance has provided the necessary tools that change these financial processes for the better.
MELD is utilizing an exceptional DeFi protocol to construct a virtual network between cryptocurrency and fiat currency which will benefit both crypto and fiat liquidity providers and in the process, make lending and borrowing automated, secure, and composable.
MELD lends fiat currencies provided by fiat lenders to borrowers that put their cryptocurrency up as collateral in a MELD Smart Contract. The lender receives an interest rate from secure investments, while the borrower is free to retain their crypto positions and watch it grow at an annual average rate of 32% per year (BTC is 196%).
MELD stakes the collateral in community-managed liquidity pools for their revenue, which is split 50/50 between MELD and MELD token holders.
How MELD Works
1. Fiat Liquidity Lending
Fiat liquidity providers lend fiat to the MELD protocol, through the MELDapp, to earn high-interest yields. The yields for lending fiat on MELD are sourced from various places, including interest paid from the borrower, trading fees APY from the liquidity pools of MELDed assets, and protocol rewards.
2. Crypto Collateral
For a borrower to gain access to fiat loans, the borrower must deposit cryptocurrency (ADA, BTC, ETH, or BNB) to the MELD loan Smart Contract. Once deposited and locked into the Smart Contract, the borrower will be able to take up to 50% of the value held within the cryptocurrency through a crypto-backed loan or a line of credit.
3. Fiat Borrowing
MELD will offer two fiat borrowing services, crypto-backed loans, and a line of credit. From a collateral perspective, both services function similarly. A borrower will have to deposit 2x the desired fiat in cryptocurrency to utilize either service. Borrowers receive fiat currency via wire transfer directly into their account for crypto-backed loans or gain access to a line of credit utilized by the MELD Debit Card, after depositing their crypto.
4. MELD Vaults (Liquidity Pools)
The liquidity pools run by the MELD protocol are single-sided MELD/Token pools. When a user makes a crypto deposit, the deposit is locked to a smart contract and placed into the respective MELD/Token pool. The benefit of this is that the deposited crypto can be exposed to trading fees APY from external DEX aggregators/routers. The MELD protocol has integrated impermanent loss protection for crypto depositors.
5. The MELD Token
The MELD token provides a few utility functions for the holder. First, MELD was issued to pay for some transactions on the protocol. Second, you can stake MELD and earn 4% APY rewards. The MELD staking pool acts as an insurance solution for protocol. The staking pool protects against problems that might arise in the protocol and against impermanent loss in the MELD liquidity pools. The APY for the staking comes from 50% of all protocol fees, such as MELDed assets and trading fees.
6. Loan Repayment
MELD offers crypto-backed loans and a line of credit to crypto depositors. Borrowers of fiat through these instruments pay back the principle & interests monthly until paid off.
7. Crypto Collateral Returned
The crypto collateral is unlocked and withdrawn from the respective liquidity pool to the user’s wallet, and the smart contract is completed upon loan repayment.
8. Fiat Liquidity Returned
At any time, fiat liquidity providers can withdraw their money. If a crypto-backed fiat loan position suffers a liquidation event, then the underlying crypto asset is sold and transferred to fiat to ensure the fiat lender doesn’t suffer any losses.
Conclusion
The digitalization of the traditional financial system is essential to improving its general efficiency and profitability. MELD has provided a means for merging traditional and digital finance, with the tools for acquiring a better financial experience. Be a part of this amazing revolution.
Official Links:
Website: https://www.meld.com/
Twitter: https://twitter.com/MELD_labs
Medium Blog: https://medium.com/meld-labs
Telegram Community: https://t.me/MELD_Global
