• Danny J. C.

Crypto Collateral

Crypto lenders are raking in profits and growing despite the current year-long bear market. Such lending platform work by connecting borrowers to a network of lenders registered on a platform. To borrow an amount, the borrower needs to first deposit his/her cryptocurrency assets on the platform as collateral. The lender can lend the amount to borrower and earn interest over it. Once, the borrower repays the loan with interest, he/she get’s back his/her crypto assets from the crypto lending platform.


For lenders this is clearly an opportunity to earn some interest by lending to other users. Borrowers can get cash and are able to avoid the pressure to sell their cryptos at loss/ at all when thy need money. Money could be used to pay any needed expenses or even to further invest short term.


There is a rising number of cryptocurrency lending applications representing and alternative to traditional loans/ lending. Banks have long been the ultimate source for lending capital and borrowing to the public but that may be changing with the development of Blockchain enabled peer to peer (P2P) lending applications across the world.


Research suggests that market has massive opportunities: peer to peer lending platforms opt to be worth over $490 billion USD before 2020, and worth $897.85 billion USD by 2024.


P2P Lending vs Bank based lending


Technology is emerging exponential over any other development in human history. With the internet opportunities to connect and interact and decentralize are exploiting new business models, and disrupt legacy systems.


Currently, as a borrower, banks require a number of documents such as a good credit score, previous bank statements, verification and some form of collateral to receive the loan. Even after producing all these forms of documentation, borrowers still need to wait for 30-45 days to receive the money in their accounts accepting heavy processing fees. Lenders also struggle through the current banking systems with very low rates and possible negative interest rates across the globe.


How does Peer to Peer lending (P2P) work?


Blockchain technology allows borrowers and lenders to exchange funds without the need of an intermediary. Users "crowdsource" funds/ loans. Agreements are recorded via a smart contract on the Blockchain. Once the conditions to execute the contract is fulfilled, borrowers are able to receive the funds within 2 hours to max 7 days pending verification with very low transaction fees.


How to get a loan through P2P blockchain lending?


Users have to collateralize their digital assets on the lending platform. Besides, you are required to provide the necessary KYC/AML identification, income verification, and some personal references. Still less stringent than dealing with any bank. Once verified, select your favorite type of loan with options on duration, lending rates and the amount required. The lending and borrowing service is available for anyone with an internet connection across the world!


Some examples of peer to peer cryptocurrency and digital assets lending applications:

What are the advantages of Blockchain P2P loans?

  • They are faster than conventional methods of getting a loan

  • The peer to peer loans offer better rates than traditional loans

  • Some of the P2P lending platforms offer a flexible market for loans where borrowers and lenders negotiate the interest rates and timespan for repayments

What are the disadvantages of Blockchain P2P loans?

  • Blockchain and cryptocurrency being still in its infancy, the market for peer to peer lending through digital assets is heavily depend on adoption

  • The volatile nature of cryptocurrencies is a barrier to entry to the field of peer to peer lending

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Sources: The Block, Cointelegraph, Morgan Stanley, Bloomberg, IWSFinTech

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