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.
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.
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.
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.
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.
Written by Paul Keenan and Allen Taylor.