"Wow the development is amazing, maybe even traditional providers will be forgotten."
Without realizing it, the entire cryptocurrency market is growing as more firms use blockchain-based personal credit loans, a technology that has recently been developing.
Through observation, active personal loans through the digital ledger increased 55% to $408 million as of November 28, 2023 starting from the beginning of 2023, but it should be noted that it is still lower than the peak of almost $1.5 billion last June.
Although borrowing costs vary across transactions, some blockchain protocols charge as little as 10% while traditional providers are looking for double-digit rates in the current environment.
Firms that have successfully implemented digital ledgers have said transactions and repayments are transparent since the blockchain is open to public scrutiny and software called smart contracts can monitor pressure and automatically withdraw loans or collateral.
The increase in transparency and the onchain liquidation mechanism has reduced the risk of lending, commented Lendaru (Asia) Capital co-founder Agost Makszin, adding that this may result in lower loan rates compared to traditional private credit.
It is widely known that traditional personal credit lending which has tripled in size since 2015 by providing loans to smaller firms to finance purchases, real estate and infrastructure has been labeled too opaque* by bond giant Pimco and the European Central Bank (ECB).
*Pricing of goods and services whose brand or detailed quality information is hidden during the sales process
Protocols such as Centrifuge, Maple Finance and Goldfinch can collect and provide access to investor funds using the Ethereum blockchain (ETH) or stablecoins such as USDC, where borrowers use funds under terms encoded in smart contracts.
According to Sidney Powell, the co-founder of Maple Finance said that they will use blockchain and smart contracts to manage their loans, taking costs including financing loans faster.
