Rusty Shapiro, a DeFi product consultant at Input Output Group (IOG), published a post arguing that the dominant form of DeFi lending, which forces automatic collateral sales when asset prices fall, dominates crypto markets but accounts for only a small fraction of traditional private-sector lending. He calls the alternative "non-margin loans," a term of his own coinage not found in traditional finance, where such products are instead categorised by collateral type. The category covers mortgages, car loans, gold loans, and pawn lending. In these structures, a lender only takes collateral if the borrower misses scheduled payments, not because a price feed crossed a threshold.

The distinction matters more than it might appear. According to IOG, which cites its own earlier research on the subject, roughly 95% of traditional private-sector loans are non-margin in structure, while roughly 95% of DeFi loans are margin-based. Neither figure has been independently verified by a third party.

The entire $54 billion DeFi lending market, led by Aave with more than $40 billion in total value locked and over $1 trillion in cumulative loan volume, is built around automated liquidation engines. When crypto prices drop sharply, those engines fire simultaneously, compounding the sell pressure. On October 10-11, 2025, a U.S. tariff announcement triggered $19.13 billion in forced liquidations across 1.6 million accounts within 36 hours. Many of those liquidations may not have reflected any problems with borrowers' underlying businesses or repayment capacity.

Shapiro's framing puts a name on the structural problem. "The non-margin loan model itself is part of the solution to the volatility problem," he writes, because collateral locked in a fixed-term contract cannot be panic-sold during a market correction. He also takes aim at the assumption that safer lending means riskless lending. "Lending should not be risk-free!" he writes, and argues that properly managed lending is inherently a numbers game where profits typically exceed losses over time.

The key word in Shapiro's argument is "managed." The implication is that margin loans transfer management to an algorithm, while non-margin loans put it back on lenders who, in theory, assess whether a borrower can meet a payment schedule.

The protocol most closely associated with this approach on Cardano is cardano-loans, an open-source project developed by a contributor known as fallen-icarus on GitHub. That connection is drawn from the cardano-loans repository and related coverage; Shapiro's post does not appear to name the protocol explicitly.

The protocol creates individual smart contract instances for each loan rather than pooling liquidity, which fits Cardano's extended UTxO architecture (a local-state design in which each loan is an isolated financial position rather than pooled liquidity). Each loan has its own address, its own payment schedule, and its own enforcement logic. Crucially, it requires no oracle. Oracle services are the price-feed infrastructure that margin loan protocols rely on, introducing both manipulation risk and infrastructure dependency. When a payment is missed, the lender gains custody of the collateral. When the final payment is made, the borrower reclaims it. The contract handles enforcement without needing to know what the collateral is worth at any given moment. The protocol also issues transferable Lender Bond NFTs, which function more as transferable debt instruments than collectible tokens and represent the creditor's position, allowing lenders to sell their loan positions on a secondary market before the borrower's term ends. According to KuCoin's coverage of the protocol, this would create the first secondary debt market on Cardano.

IOG says a non-margin credit market on Cardano is targeting a Q2 2026 launch, though that timeline has not been independently confirmed on-chain or through a formal mainnet announcement.

Cardano's total DeFi TVL currently sits between $380 million and $550 million (as of early 2026), with Liqwid Finance at approximately $177 million (up 296% over the prior month) and Lenfi at $66.5 million (up 348%). Both operate on margin-loan mechanics today.

For readers in South Asia and sub-Saharan Africa, the non-margin framing describes financial instruments that are already widely used and understood. Gold loans are the dominant short-term credit product in India, where an estimated 190 million adults remain outside the formal banking system. In sub-Saharan Africa, pawn lending and informal collateral credit serve hundreds of millions of people who need liquidity against assets they own, not leverage on assets they want to speculate on.

Nigeria alone received over $30 billion in DeFi value in 2025, with 85% of transactions falling below $1 million, indicating grassroots rather than institutional usage.

Africa holds roughly 22% of the global pawn market by some estimates. That figure draws on a total market that IOG values at approximately $40 billion; formal market research firms put the regulated sector at closer to $8 billion, a gap that reflects the substantial share of informal and unregistered lending across the region.

The oracle-free design of cardano-loans is particularly relevant in these markets, where reliable price feeds are less established and oracle manipulation risk is meaningfully higher. The protocol's on-chain credit history feature may carry even more practical weight: it offers a way to build a verifiable borrowing record in countries without functioning credit bureaus, which describes most of sub-Saharan Africa and significant portions of South Asia. For communities long excluded from formal credit scoring, that capability could matter as much as the loan mechanics themselves.

IOG is funding this work partly through a $46.8 million treasury request from the Cardano ecosystem for 2026, approximately half of its $97.5 million request in 2025.

The non-margin credit market is listed alongside Bitcoin DeFi infrastructure as a primary deliverable. Cardano has set a public target of $3 billion in TVL by 2030. Whether non-margin lending is the mechanism that closes that gap will depend on whether the cardano-loans protocol can demonstrate real adoption when it launches, and whether the conceptual argument IOG is making translates into products that borrowers in Lagos, Mumbai, and Nairobi can actually use. Independent analyst reactions to the IOG proposal were not yet available at the time of publication.