As the cryptocurrency market is maturing, we find a larger number of businesses trying to capture the value and providing essential services to the users. One such sub-sector is crypto lending which is not just growing quickly but also providing crypto hodlers a chance to cash their funds without parting with their coins.
What does the crypto lending industry provide?
Hodling could be a good strategy for long term value addition to a users’ portfolio. However, it also locks in their money. On a crypto lending platform, users can get a loan by keeping their crypto assets as collateral. The transaction is sealed via a smart contract. The terms and conditions change depending on the lender, but the contracts usually track credit payments and accrued interests. What sets crypto lending apart is that it doesn’t require lengthy credit checks.
The crypto lending industry started flourishing during the crypto winter of 2018 when bear markets narrowed down the chances of profits for investors. At the peak of the bear market, users were hopeful about a bullish turn but didn’t want their money to lie idle. Therefore, lending money on interest came up as a good idea. Since then, low-interest rates, lesser hassles, and a simplified borrowing and lending system has kept users hooked to this industry.
Where is the industry headed?
The industry is valued at $4.7 billion, with the number of lending platforms growing rapidly. According to a new report from Graychain Ltd., lenders have earned a total of $86 million in interest since 2018. In Q1 2019, these platforms issue 5,400 new loans totaling to $64.8 million. By Q2, 2019, the number grew to 18,500 total to $159.3 million.
The critics of the industry suggest that it is growing too quickly and might create a new bubble in the young crypto industry. However, their warnings are landing on deaf ears as the volume and number of loans are increasing by the day.
The sector is divided into two main categories- undetectable loans and depository loans.
The depository loans come with a more centralized infrastructure that secured loans via trusted third parties. These loans are more popular amongst users because of their custodial nature and higher amount of trust. Undetectable loans are completely decentralized and non-custodial. It is designed for retail investors and traders. These loans are often used for decentralized applications that are often seen on blockchains like Ethereum.