Mar 10, 2022

Crypto Lending: The Next Billion-Dollar Vertical?

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Imagine if crypto’s lightning-fast payment architecture could broaden credit access, getting funds into the hands of millions of more households and businesses across the world? 

Yes, we are talking about crypto lending, a bleeding-edge industry that just might offer lenders new ways to use blockchain and other emerging technology and resources to put unbanked populations at the centre of their design.

Can crypto loans be a force for good?

We are still in the early days of blockchain. But one project in Kenya shows its potential for good. Grassroots Economics is issuing tokens backed by local community goods and services for emergency credit. When people in Nairobi borrowed roughly $30 in cryptocurrency tokens, they increased their wallet balance, income, and spending on food and water.

Crypto loans could look very different

Decentralised Finance could have even more radical implications for borrowing and lending if companies seek the same clever solutions implemented by Grassroots Economics. For example, Goldfinch, a new fintech company, DeFi, can unlock a ‘new layer of underwriting capacity by allowing anyone to be a lender. Goldfinch has already deployed $1M in capital to thousands of borrowers across Mexico, Nigeria, and Southeast Asia.

It is likely collateral is here to stay. And credit scoring will remain at the core of most credit risk assessments, whether they happen through traditional finance or DeFi. Collateral-free loans and verification-free lending have their place, but only in limited situations where radical solutions are needed. 

Crypto lenders will face regulatory questions

Check and balances are table stakes in a world where regulators are closely watching the activities of disruptive fintechs and a reality crypto firms are slowly beginning to accept. For example, America’s SEC has recently threatened to sue companies offering crypto lending. And in February 2022, BlockFi was hit with a $50 million penalty for failing to register the offers and sales of its retail crypto lending product.

The ruling may give other cryptocurrency lenders cause to shudder. But it did also provide some hope, with the SEC mentioning it is willing “to work with crypto platforms to determine how they can come into compliance with [securities and investment company] laws”. 

Credit scoring for crypto loans

One thing is clear right now. 

Crypto lenders looking to navigate the need for faster, fairer transactions amid a rapidly-changing regulatory landscape need partners who can assist them with new ways to score borrowers. Credolab is the domain expert in understanding digital footprints and the only provider that can deliver insights that drive results without compromising users’ privacy or lenders’ reputations while providing useful insights to increase the value of customer data. Talk to us today.

Download our new eBook on crypto lending.