Blockchain lending resurges as cryptocurrency loans soar by 55% this year

Cryptocurrency borrowing surged 55 percent in 2023, reaching approximately $408 million by November 28, data from tracking platform reveals.

Some companies are turning to blockchain-based private credit for funding, primarily due to high-interest rates elsewhere. This has led to a partial recovery in a sector that struggled during last year’s cryptocurrency crisis.

When it comes to borrowing costs, blockchain protocols can charge less than 10 percent, while traditional lenders are asking for rates in the double digits, according to information from and private credit lenders.

Supporters of digital ledgers (blockchains) said they make deals and repayments easy to see to the public. They also added that smart contracts can keep an eye on things and automatically handle loans or collateral in case of problems.

Agost Makszin, co-founder of an alternative investment management group, Legendary Asia Capital, said that increased transparency and on-chain liquidation processes had minimized the lending risk.

“This has likely resulted in lower borrowing rates compared with traditional private credit, which is often slower and has a longer liquidation process,” said Makszin.

Bond giant Pimco and the European Central Bank believe that traditional private credit is too opaque. Since 2015, this industry has grown three times its size, providing loans for small businesses, buyout financing, real estate, and infrastructure, with many wanting to get involved in this kind of investment.

In the blockchain version, systems like Centrifuge, Maple Finance and Goldfinch can combine or provide access to money from investors. They usually use the Ethereum blockchain and stablecoins like USDC, which are linked to the U.S. dollar, and debtors will have to follow specific terms in their smart contracts.

In order to make investors feel more secure, these systems can take actions like organizing loans or backing them up with real-world assets. According to data, most active loans, in terms of value, are in the consumer, auto, and fintech sectors. Real estate, carbon projects and crypto trading come next.

“We’ll try and leverage the fact that we use the blockchain and smart contracts to manage our loans, take out costs and fund loans quicker, to try and get a competitive edge,” said Maple Finance co-founder Sidney Powell.

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