The Economics of Trustless Lending
For centuries, lending has depended on one fundamental question: Can I trust the borrower to repay me? Traditional financial institutions answer that question through credit scores, collateral requirements, employment records, legal contracts, identity verification, and centralized intermediaries. These systems can work, but they are expensive, slow, geographically limited, and often exclude people who lack conventional financial histories. Decentralized finance (DeFi) introduces a different approach: trustless lending . Instead of relying primarily on a bank or lending company to determine who can borrow, trustless lending uses blockchain infrastructure, smart contracts, collateral, transparent rules, and automated liquidation mechanisms. The goal is not to eliminate trust, but to replace dependence on trusted intermediaries with verifiable rules and economic incentives . That shift creates a completely different economic model for lending. What Does “Trustless” Lending Actually Mean?...