Best practices for decentralized crypto loan systems

Unlike other maintenance-free DeFi applications (e.g., DEX or staking protocols), running a crypto loan system requires some effort and cost to maintain. For example, the project owner may need somebody to liquidate assets when some users’ accounts becomes unhealthy. Also, we need to monitor the asset pools to ensure that users have access to sufficient tokens to borrow or withdraw. In this section, we will discuss the best practices to keep a decentralized crypto loan system in good shape.

Select blue chip assets

Blue chip assets in the context of crypto loans are cryptocurrencies that have stable prices, big market capitalizations, and good long-term reputations. These assets maximize the security of investments and help stabilize the values of the assets held by the crypto loan system. Therefore, blue chip assets are the best choice for asset pools.

The stability of blue chip assets means that liquidation is less...