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.
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 are 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 minimises 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 2019 are 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 borrower’s nerves.
Good news, CoinLoaners. We’ve developed a revolutionary Dynamic Collateral Monitoring System. It allows overcoming the problem of cryptocollateral movements and raising the maximal LTV limit to 70%.
CoinLoan Collateral Monitoring System
If your collateral price falls, LTV (loan-to-value ratio) grows. In case of significant decline, you can repay the loan earlier or add extra collateral. We used to sell a part of your cryptocollateral if the LTV ratio of the loan reaches 80% and you do none of the above.
It’s a usual approach for crypto-backed lending platforms, it helps to bring the situation back into balance. But it’s so far from perfect since borrower loses his savings. Over the past year, we’ve been testing new visions and working on liquidation system improvement. Today we’re excited to present a new solution that allows increasing the liquidation threshold significantly.
How It Works on CoinLoan
In a nutshell, your cryptocollateral is now far less vulnerable to crypto fluctuations. A margin call may only occur if your LTV ratio crosses the line of 90%. The exact point of liquidation is estimated for each loan individually and depends on the interest rate.
Window of Opportunity
The fact that cryptocollateral can now resist market fluctuations allows us to have one of the highest LTVs on the market and to raise LTV limit from 60% to 70%.
While most competitors still have a 50% LTV limit, we improve 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.