The Rise of Crypto Lending, a Natural Progression of Peer-to-Peer Financing

Nexo

The rise of new technologies often give rise to new business models. The peer-to-peer lending space is just over a decade old and still have much to grow into. However, not long after the first P2P lender–Zopa in 2005–opened its doors, a new technology that promises to challenge traditional ways to deliver financial services emerged. […]

Nexo

The rise of new technologies often give rise to new business models. The peer-to-peer lending space is just over a decade old and still have much to grow into. However, not long after the first P2P lender–Zopa in 2005–opened its doors, a new technology that promises to challenge traditional ways to deliver financial services emerged. That technology was the blockchain, a distributed ledger that underlies the cryptocurrency Bitcoin. Since then, other blockchains have been created along with new business models to suit. As it stands in 2018, crypto lending has not made a big dent in P2P lending services, but the potential is there. This article will highlight some of the more significant blockchain-based P2P lenders, which we hope will inspire a new look at technological innovation in this space.

Think of crypto lending like you would the banking industry: Even if Capital One provided perfect products at every turn, there would still be plenty of room for JPMorgan Chase, Citigroup, and Bank of America. There would still be room for the hundreds of other banks that compete for customers.

The companies listed here are not ranked in any manner. Rather, they=se are just some of the choices available for consumers in the market for cryptocurrency loans.

1. SALT (Secured Automated Lending Technology) Lending

One of the best benefits crypto-based lending has to offer is that a lessened importance on traditional credit scores as a factor for risk assessment. SALT Lending touts blockchain-based assets as “the perfect form of collateral.” The company is using this fact to “dramatically reduce the complexity and cost of the loan process.” SALT operates under Regulation D and, in lieu of credit checks, the company does AML and KYC verifications.

Offering three tiers of product, SALT’s loans start at $5,000 and go as high as $250 million. Loan percentages run between 12 and 22 percent APR, but the borrower retains the value of the collateral currency claiming any gains and losses that happen over the life of the loan. SALT accepts Bitcoin, Ethereum, Litecoin, and Dogecoin as collateral, and funds loans in USD.

One fact that could be a significant factor when deciding to use the SALT Lending platform is that loans are not transferable on the blockchain, but through existing financial channels. Thus, they become securities.

It’s not foolish to base a good bit of faith in a company that has proven players on its team. Founder Erik Voorhees was also involved in founding several other crypto websites prior to starting SALT Lending. Among these include Satoshi Dice, which he later sold, Coinapult, and ShapeShift.

2. ETHlend

Unlike SALT Lending, Estonia-based ETHlend is a fully decentralized P2P platform built on the Ethereum blockchain for lending Ether as tokens for collateral. Some insiders fear that platforms that allow their loans to become securities might run the risk of being swallowed up by banks.

ETHlend lends Ethereum, Bitcoin, their own LEND tokens, and DAI tokens, as well as 180+ other Ethereum-based tokens. The company offers address-to-address loans that are sent within minutes, with no middle men, assuring that no one, not even Ethlend, can stop one’s lending or borrowing. The company plans to expand beyond Ethereum to other distributed ledger platforms in Q3 of 2019.

The company’s interest rates range from .25 to five percent MPR, and all transactions are carried out on digital wallets. Borrowers that transact in the LEND token can get a no-fee loan.

Announced earlier this week, Aave is a tech-based company designed to expand on the offerings of centralized fintech companies like PayPal and Coinbase. Aave Pocket, Aave Gaming, and Aave Lending (SaaS) are among the offerings this expansion adds to the platform.

Unfortunately, the service is not yet available everywhere including a block to U.S. citizens.

3. Nexo

A new kid on this block is Nexo, and being a new kid means that they are doing things in a new manner. Founded in Zug, Switzerland—even more of an “EF Hutton” mention than Estonia—in 2017, Nexo promises the world’s first instant crypto-backed loans. Available worldwide, Nexo loans start at $1,000 and top out at $2 million.

The process is an easy one.

  • Log on to the website.
  • Verify your account
  • Deposit crypto assets into Nexo wallet
  • Withdraw loan to your bank account

There will be brief pauses while the borrower is verified—the company complies with the highest AML and KYC (provided by Onfido) standards—and while your deposit is confirmed on the blockchain. Overall, the Nexo process reads like a rather quick and seamless process.

The platform loans Euros, USD, and Tether while accepting Ether, bitcoin, Bincance coin (BNB), and Nexo as collateral currency. The interest rate is eight percent if the collateral currency is Nexo and 16 percent for all others. Nexo assets are stored in multi-signature wallets, more than one multiple cryptographic keys are necessary to gain access, and cold storage (wallets not connected to the Internet) at BitGo and PrimeTrust.

4. LendingBlock

LendingBlock predicts that, as digital assets grow as an asset class, demand for hedging, swaps, repurchases, and short selling will increase. The currency crypto market has more than $500 billion in assets circulating with less than one percent used as collateral. That leaves lots of room for growth.

Touted as the first cross-chain lending platform for the crypto economy, the company promises a product that will help its customers access secure, transparent, and fair crypto-to-crypto loans. Not a lender itself, LendingBlock provides the platform upon which parties can enter P2P contracts. The company acts as agent for both lender and borrower, as well as security trustee of the collateral. This ensures that the borrower doesn’t face any uncovered credit risk to the lender.

All collateral deposits are held in cold storage. Those who think regulation will be necessary before the crypto market can fully mature can take comfort in the fact that the company is focused on becoming a regulated business. They have submitted the full regulatory application to the country of Gibraltar and await the regulator’s response. They have also begun regulatory processes with the Financial Conduct Authority in the UK, and the Securities and Exchange Commission and Commodities Futures Trading Commission in the United States.

Basing the platform on its own token (LND), which is used to make payments and receive interest on loans, allows the company to reduce the cost of exchange fees and makes it easier to manage interest payments. The use of smart contracts reduces expenses, risks, and complexity, which makes for lower costs for borrowers and higher returns for the lenders.

5. BlockFi

New York-based BlockFi might be the ideal platform for Americans who want to secure USD loans with Bitcoin and Ethereum, provided that said Americans live in any of the 44 states where the company is currently conducting business.

The attractive thing about the BlockFi platform is that it seems easy enough for a lay person to understand without any kind of financial advice. A borrower needs to meet only two requirements to qualify for a loan: They can have no liens or bankruptcies on their record, and they must have at least $15,000 of crypto assets between their Bitcoin and Ethereum portfolios.

If those criteria are met, the customer can borrow up to 35 percent of their crypto asset value, with loans ranging from $2,000 to $10 million. Interest rates go from 12 to 14 percent APR, and there is an added fee of one to four percent of the loan value. Borrowers can take a loan in Bitcoin, Ethereum, or Litecoin.

Unlike other crypto-based lenders on this list, BlockFi does not have its own coin or token.

6. Unchained Capital

Texas-based Unchained Capital could very well be the platform of choice for those who want to liquidate their Bitcoin while maintaining it and seeing it go to work in the world.

Not only is the team at Unchained Capital in the market to make money as a lender, they have an idealistic side as well. Noting that 60 percent of Bitcoin sits around and does nothing, they have a goal to circulate it and use it to strengthen the platform. The company was founded by people who believe cryptocurrencies can change the world only if they’re useful.

The Unchained Capital team has designed its personal loans to be ideal for people who are looking to make large purchases, who hope to avoid tax events, and who want to invest. Their commercial loans are geared to companies that want to free up capital, expand their businesses, buy expensive equipment, and balance their portfolios.

Unchained Capital does not have its own cryptocurrency.

7. Other Companies to Consider

The crypto lending space is expanding. New lenders seem to be popping up quite often, which means that some people in the cryptocurrency space, at least, see a market for crypto-backed lending. Despite the market having taken a downturn in 2018, rebounding from the bull run last year that catapulted Bitcoin to $20,000 in December, this space is expanding. Lately, Bitcoin has been holding around the $6,500 mark. Since the majority altcoins tend to follow Bitcoin’s price, that means the market as  whole is down, yet more crypto lenders are ambling to get in the door.

Some of the other companies in the crypto lending space that might be worth checking out include BitBond, Credible Friends, Bitfinex (a crypto exchange that facilitates crypto financing transactions between parties), Celsius, Poloniex (another cryptocurrency exchange that allows traders to lend to other users), CoinLoan, Nebeus, GetLine, and BTCpop.

Authors:

Written by Paul Keenan and Allen Taylor.

Allen Taylor

Lending Against Cryptocurrencies

crypto lending

In an era where blockchain is transforming the financial landscape, loans against cryptoassets will emerge as an essential financial service allowing investors to retain ownership of their cryptocurrencies along with offering them much needed liquidity. In fact, this is already happening. SALT Lending SALT Lending’s co-founder, Blake Cohen, started working on blockchain technology in 2014. […]

crypto lending

In an era where blockchain is transforming the financial landscape, loans against cryptoassets will emerge as an essential financial service allowing investors to retain ownership of their cryptocurrencies along with offering them much needed liquidity. In fact, this is already happening.

SALT Lending

SALT Lending’s co-founder, Blake Cohen, started working on blockchain technology in 2014. Shawn Owen joined with Cohen and spent the next year surveying the evolving blockchain landscape. The blockchain universe lacked a host of products and services required to support the growing sector, but their Eureka moment came when they saw there was no lending product that allowed blockchain assets to be collateralized for lending in fiat currencies.

Cohen is now the chief business development officer. His background in real estate coupled with a family history in hard money lending helped him realize the problem of liquidity in the crypto world. After spending a few months conducting a thorough feasibility study where he evaluated the technology barriers, regulatory hurdles, and market size of the crypto market, he realized there was a massive business opportunity. He and Owen incorporated SALT Lending in June 2016 and launched its operations in June 2017.

The company is based in Denver, Colorado. The one year between incorporation and launch was spent building the technology and in business development. The platform enables cryptocurrency owners to take a loan using their cryptocurrency as collateral thereby safeguarding their investments, which can be reclaimed at any time after the repayment of the loan. This allows them to monetize their blockchain investments without having to sell them off. Salt facilitates liquidity for borrowers, but they still get to enjoy the upside (or downside) in the price of their original investments.

The platform went public at the Consensus conference held in New York in 2017 and received an overwhelming response. It started official disbursement of loans in December 2017.

Funding Crypto Lending

Initially, SALT Lending was funded through family and friends and raised an amount in the region of $1 million. Last year, it went on with a membership sale denominated in utility tokens – SALT. The same was considered as a revenue event and not a fundraising initiative. The sale of tokens is still going on. In the discounted round, it had raised an amount of $42 million.

The thought process behind issuance of membership tokens was that ICO is a misleading term and usually confused with IPOs (Initial Public Offering). Membership tokens offered by the company will bring the interested population to the company’s platform without requiring it to spend huge amounts of money on marketing. The idea seems corollary to an IPO, but the difference is that IPOs create shareholders in the company whereas only a small percentage of ICOs are securities giving contributors ownership rights. The majority of ICOs generate utility tokens that are to be utilized in the business ecosystem of the company.

How the SALT Lending Platform Works

The biggest driver behind the platform is its in-house technology. The automated platform operates on Ethereum-based smart contracts that facilitate crypto loans backed by blockchain assets as collateral. Membership, premier, and enterprise versions of products offered by the company allow investors to receive loans in USD or any other currency depending upon selection of the package.

The blockchain assets of borrowers are secured by the company’s proprietary custodian technology. The proprietary multi-signature wallet regularly monitors the blockchain assets from origination till release thereby reducing the risk. The multiple signer features provide borrower and lender with a private key along with a third-party custodian; this ensures that there can be no misappropriation of the collateral.

With a view to minimize the default risk, SALT Oracle Wallet regularly tracks the value of collateral assets and generates alerts in case of a drop in value  below a certain specified limit, which will further trigger liquidation of the collateral. Each loan originates with an LTV of about 60%. In case of a drop in valuation, the system will automatically liquidate a certain portion of the collateral to reach the original LTV, but only after notifying the borrower.

Products Offered

Products offered by the company facilitate borrowers with a maximum of 36 month term loans with interest rates ranging from 10% to 20% depending upon the LTV. Very few companies are offering loans with such favorable conditions. The first product offered by the company was in the form of fiat loans backed by crypto assets.

At present, SALT Lending is working with over 70 full-time employees, has processed 17,000 loan requests, and has 12,000 active SALT members. To date, it has originated loans worth $40 million.

The customer base is widely distributed across different segments. The comapany also serves small investors who are keen to invest in cryptocurrency and do not want to sell their assets for temporary liquidity issues. The purpose of loans may vary from customer to customer. Some may use a loan to repay student loans, rent a home, or invest in other assets, while corporate lenders may require a loan to expand their business and introduce additional revenue streams.

SALT Lending’s Future Plans

Lending against crypto assets is still an immature market and no complete set of solutions is currently available. Regular adoption of technological updates in the blockchain and fintech world is helping the company to fully automate each aspect of the operations and scale the business to new and emerging markets.

Custody of blockchain assets is one of the main issues that needs to be addressed. No platform or solution provider is providing a user-friendly experience in this respect. According to Cohen, this year will bring a drastic change in custodial architecture, and SALT Lending will be at the forefront of this progress.

Conclusion

Borrowers under the cryptocurrency mechanism have no issue with respect to the comparatively high interest rate because the appreciation in value of the underlying asset is expected to indemnify the high finance charges. Sale of such underlying assets results in high amount of capital gains and, therefore, borrowing against these assets provides a more tax efficient solution for crypto investors.

The industry at present is in price discovery mode. Economic pricing policies, daily reviews, and revisions in terms of lending will help SALT Lending establish a long-term market.

Different industries and asset classes are moving to the blockchain technology. SALT Lending is on its way to creating a platform that will bring together the crypto and fiat worlds where crypto assets can be used in the normal course of business.

One target for the company is to analyze and understand the needs of its customer base and respond accordingly. One such need is to make available lines of credit backed by a crypto portfolio. The company is also continually looking to partner with investors who will bring capital to meet the ever-increasing demand for loans in the industry.

Author:

Written by Heena Dhir.