Lenders and borrowers alike are entering exciting and uncharted territory ahead, as blockchain lending platforms have arrived and with it, a behemoth in untapped market potential.
According to the annual syndicated loan review from Thomson Reuters, the North American consumer loan market in 2017 alone spent $2.7tn in financial services, and by 2019, the consumer loan market is expected to reach $50tn worldwide. These figures represent strictly dollars, as no formal assessment has been made yet toward the crypto space.
Crypto currency market capitalization is once again moving forward, crossing over the $500bln mark, (20x its value since 2017). Clearly, the market for blockchain loans wasn’t going to remain on the sidelines for very long.
In the same way the blockchain represents any coin, token, or contract, loans don’t require endless layers of documentation required by traditional lenders, like proof of income, tax assessment and personal records.
What they do provide however, is instant credit approval, exchange fees, tax liabilities, instant funding and low risk.
It is reasonable to ascertain that if a borrower’s crypto is immediately verified, creating an instant loan approval from the lender, with multiple repayment options, and options for no monthly or annual fees, the institutions of yesteryear are certain to see the writing on the wall, and certainly will need to adapt quickly or lose bigtime.
Like with any loan market, interest needs to be paid. However, it seems interest is less cumbersome when principle assets and systems are built upon an industry growing 10x-20x in market cap annually, opposing the current market that’s based on the business of debt and hemorrhaging money.
Here’s an example, not to be taken as financial advice:
Someone has $10k in Bitcoin and uses it as collateral for a $5k loan to purchase Litecoin. (LTC). Based on the prognosis of industry experts, LTC is projected to be around ¼ the value of Bitcoin through future price speculation, which would currently be approximately 20-30x its current value.
Your BTC remains secure in escrow, increasing in value with future market sentiment, and the dollars loaned out are used to purchase LTC, which also increases in value. $5k hits a marker at 5x giving you $25000. The loan is paid and you have 20k to get a second loan. No wonder banks are nervous.
Three players in blockchain are entering the loan market, and as expected, have issued multi millions in collateral loans. Here are the 3 key players.
With a market cap of $244mln, SALT is currently the largest blockchain lending company to date. The platform launched in 2017 and issues USD loans backed by Bitcoin and Ethereum. SALT currently has over 60 thousand users and over $30mln in loans serviced. SALT’s model uses a peer-to-peer (P2P) technology that matches lenders with borrowers. The lenders choose contract terms and the interest rate.
NEXO was created this year by Credissimo, a European FinTech company, and is gaining momentum behind SALT with a market cap of $180mln USD. Loans are offered in USD, EUR and NEXO tokens.
In 3rd place, with almost $90mln in market cap, and created in May, 2017, ETHLend was created by CEO and founder, Stani Kulechov, and has a team of over 20 people based in Europe and North America. The ETHLend platform uses P2P like SALT, but are smart contracts for the Ethereum network, and are completely decentralized. With this method, lenders and borrowers interact with each other directly. Borrowers set the terms and interest rate, and lenders decide which loans to fund.
As much as decentralized platforms like ETHLend are gathering attention, and as there is no need for a central party or intermediary, the drawback is that there needs to be an equal number of borrowers and lenders in order for the service to work effectively, and negotiations between the two also. This can take weeks or more to settle on terms of agreement.
With NEXO, terms are not negotiable as NEXO’s platform determines the terms. However, this creates instant utility between lenders and borrowers when issuing loans. Sometimes time is not a luxury when waiting for a loan.
Whatever platform to choose from, this new market for lending is going to make borrowers, lenders and the companies that provide them, very successful.
It looks as though we’re just scratching the surface.