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.
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.
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%.
CoinLoan now offers “reversed” loans you can’t find anywhere else. We are talking about loans in cryptocurrencies secured by stablecoins or fiat. On the Lending Market, users can now borrow BTC against USDT, or XMR against EUR, for instance.
Coinloan have reversed crypto-lending to offer lenders and borrowers new ways to put digital and fiat assets to work. CoinLoan is now the only company in the market that offer all three dimensions of loans: crypto-to-fiat, crypto-to-crypto, and fiat-to-crypto.
How does the feature work?
New collateral options have emerged on the Lending Market: EUR, EURS, USDT, USDC, PAX, and TUSD.
You can get a loan in BTC, ETH, LTC, and XMR backed by those fiat and stable assets.
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.