I’ve already written extensively about my P2P lending experience and my favorite P2P lending platforms, but today we’ll take a look at something slightly different: P2P lending platforms that specialize in crypto-backed loans.
Crypto lending is becoming a huge industry, and we can take a look at Google trends to verify this. Have a look at the chart showing a strong uptick in interest in 2019.
Let’s take a look at the best platforms available.
Nexo is the world’s leading regulated financial institution for digital assets while Nexo.io is the company’s business-peer and business-to-business platform which gives customers access to liquidity quickly and professionally through Nexo’s signature Instant Crypto Credit Lines.
Nexo’s instant crypto-backed loans provide immediate fiat loans backed by cryptocurrencies and digital assets as collateral. At present, the following assets are available as collateral: Bitcoin, Ethereum, NEXO, Ripple, Bitcoin Cash, Binance Coin, Litecoin or Stellar. Against these crypto-assets, clients can borrow from as little as $500 to $2 million.
The Instant Crypto Credit Lines are fully-automated and available to anyone worldwide, across 200 jurisdictions and in 40+ fiat currencies. While the platform is suitable for a wide variety of users, Nexo’s services are particularly popular among cryptocurrency investors, crypto miners, hedge funds, cryptocurrency exchanges, ICOs and crypto companies, gamers and virtual reality users.
Regarding security, the safety of clients’ assets is a primary priority for Nexo which is why they partner with BitGo, the world’s leader in crypto custodianship. BitGo provides cold storage of all custodial assets in bank-grade Class III vaults and a $100 million insurance through a syndicate of underwriters via Lloyd’s of London.
Here are the top advantages of using Nexo in point form:
- The best borrowing rates starting from 5.9% APR and only on what you use
- Secured by leading audited custodian BitGo with $100M insurance for custodial crypto assets
- A minimum amount of $500, a maximum $2,000,000 (larger amounts available upon request)
- Automated and guaranteed instant approval with no credit checks
- No installments and no minimum loan repayments
- Same/next day free local bank withdrawals
- Available worldwide in 200+ jurisdictions
- 40+ fiat currencies (USD, EUR, JPY, etc.)
- #ZeroFees – no hidden fees, no FX commissions
While a platform like Nexo is great for people who have a lot of their net worth tied up in crypto and need cash for daily living, it is also a great platform to consider as an investor.
As a lender, you can earn 8% interest per year which is significantly higher than traditional bank deposits and alternative investments. Nexo offers you full flexibility by allowing you to add and withdraw funds at any time.
Your funds are secured at all times by asset-backed portfolios of overcollateralized loans. The collateral of each loan is subject to custodial insurance of $100 million provided by the world’s leading audited custodian BitGo and the insurance leader Lloyd’s of London.
The power of compounding ensures that every day a larger interest amount is credited into your account, letting you enjoy secure high-yield passive income without any fees or commissions.
The business is continuously audited by Deloitte and the yare using onfido to adhere to the strictest KYC and AML global compliance standards. Onfido is also trusted by Coinbase, Revolut, HSBC, Nationwide, TransferWise and Bittrex.
CoinLoan is a P2P lending platform for cryptoassets backed loans, based in Estonia.
Here’s how it works.
As a lender you first deposit fiat funds or stablecoins. The borrower, on the other hand, deposits cryptoassets to secure a loan.
Once the lender and the borrower are matched, a smart contract is used to ensure the borrower pays on time, else he would risk his crypto collateral.
Once the loan is paid off, the lender gets his principal returned plus interests, while the crypto assets are returned to the borrower.
One of the biggest problems with P2P lending platforms is that it is hard to enforce any collateral for small loans and even harder to go after that collateral (if it even exists in the contract) due to the high cost of doing so relative to the loan value. This problem is eliminated if crypto is used as collateral, as it is very easy to build a contract that holds crypto as collateral.
Lenders have a significant benefit in thus having the ability to lend to people with verified collateral available. CoinLoan acts as the custodian for a safe and clear experience.
It’s worth noting that CoinLoan is licensed in Europe and well regulated. The platform also implements an AML policy.
For the borrower, there are also some significant benefits. If you’re a person who is heavily invested in cryptos and lack fiat liquidity, by using a platform like Coinloan you are avoiding the need to sell your precious crypto to finance your spending needs.
There are no credit checks since your collateral is readily available in the form of crypto, and you risk losing it if you don’t pay, so that minimizes the time needed to obtain a loan.
Loan periods vary from 7 days to 3 years and early loan repayments are not penalized.
As I’ve mentioned already, cryptoassets seem to be the perfect collateral for these types of micro-loans. However, we have not spoken about the big elephant in the room: volatility. Cryptos in the last couple of years have been extremely volatile, so one must question whether crypto-backed lending is crippled by this fact.
Let’s take an example. As a borrower with an LTV of 50% for a particular loan, this means that your collateral crypto’s value is two times higher than your fiat loan, which is a good place to be at.
Now let’s say crypto values nosedive overnight, and you’re risking a margin call.
If anyone asks you about the main bump in the road of crypto-backed lending, which one would you name? The CoinLoan team has a definite answer to this question. The main thing that prevents cryptoassets from being perfect collateral is its crazy volatility.
Just imagine. Today your collateral value is two times higher than your loan and you feel pretty safe. Tomorrow your crypto drops suddenly and overnight is in danger of margin call. The example above might be vastly exaggerated, but nobody can deny that crypto-fluctuations get on the borrower’s nerves.
Good news, CoinLoaners. CoinLoan has developed a revolutionary Dynamic Collateral Monitoring System. It allows overcoming the problem of cryptocollateral movements and raising the maximal LTV limit to 70%.
How can lenders feel comfortable taking crypto as loan security?
The question feels very timely, given the crypto prices are going up and down like a rollercoaster in recent days. Our answer is simple. CoinLoan was born to ride that roller coaster.
Crazy price fluctuations of loan collateral are nothing unusual for this type of company. From the very first step, CoinLoan’s business model was built to deal with volatility. During the last year, that model has proved its effectiveness.
Every loan is overcollateralized. Users can borrow no more than 70% of the value of their collateral. The reserve of 30% gives CoinLoan time to take measures in case of market fall. When necessary, the platform sells collateral instantly and automatically and return the lender his funds plus earned interests.
That, in a nutshell, means that upon the loan issuance, crypto-volatility is no more concern for the lender, only for the platform and the borrower. The lender is in safety, regardless of the market behavior.
While most competitors still have a 50% LTV limit, CoinLoan improves the collateral monitoring system so that CoinLoaners can borrow more fiat for the same amount of crypto. Thus, providing crypto worth $1,000 as collateral, now you can borrow up to $700 in fiat currencies.
Blockfi offers two products to investors:
- BlockFi Interest account
- Crypto-backed loans
The BlockFi Interest Account (BIA) lets you put your crypto to work and earn monthly interest payments in the asset-type that you deposit with BlockFi.
BlockFi clients using the BIA earn compound interest in crypto, significantly increasing their Bitcoin, Ether, and Gemini Dollar (GUSD) balances over time.
Crypto-backed loans allow you to access liquidity without selling. By using your crypto as collateral, you can unlock up to 50% of the value of your assets in USD. We fund same day through wire or stablecoin.
BlockFi clients use crypto-backed loans to do anything from paying off credit card debt to buying a home. Businesses turn to BlockFi to help them with payroll financing and business expansion. There are many advantages to borrowing instead of selling, including tax benefits.
Don’t sell your crypto if you don’t have to.
Constant is a U.S.-based platform, but is open to investors worldwide. They have offices in Hong Kong, Vietnam and Malta as well. All your investments are fully secured and fully backed. The protection comes in the form of a combination of FDIC insurance, Ethereum smart contracts, and crypto collateral.
The Constant algorithm matches investors with borrowers glad to pay their rates. It then secures investor funds and borrower collateral in an unstoppable smart contract, and facilitates the entire transaction from beginning to end.
What do you think of P2P lending platforms that provide crypto-backed collateral? I think it’s a nice upgrade on the traditional P2P lending platforms and as an investor it gives me more security.