Traditional finance consist of the following asset classes:
- Stocks – that’s the equity of the companies. It can be “kind of mapped” as tokens in the crypto sector
- Fixed Income – that’s all about the credit and this is the focus of this article here
- Real estate – these are generating both rental income and hopeful value appreciation
- Alternate investments – into the gold, silver, hedge funds, and private equity
Fixed Income refers to those investments, which pay interest until the maturity date. The interest payments are known in advance. The principal is paid back at the maturity or in tranches. The principal payments are known as well in advance. This allows calculating the yield (return) of the Fixed Income instruments based on the Discounted Cash Flow models.
The Fixed Income market can be split into the:
- Bank credit, which are not securities and which are usually not transferable
- Bonds, which are securities, which are transferable, and which are traded over the OTC or exchanges
The traditional Fixed Income market is 5-10 times bigger than the global equity market.
However, in the crypto sector, the Fixed Income market is 5-10 times less than the crypto equity market. This indicates a significant potential in comparison to the traditional markets.
SmartCredit.io thesis is that the crypto sector will start to mirror traditional finance, it’s just the question of when will it happen. The tokens are mirroring the stocks. And the next big thing is the emergence of the crypto fixed income sector.
What is Crypto Fixed Income?
Crypto Fixed Income is supported by the following segments:
- Via the custodial lending systems – these systems control your assets. Lenders transfer their assets into these systems and these platforms are managing then the lending process. However, lenders are not controlling their assets. It’s the platforms, which control the assets
- Via the lending systems in the exchanges – lenders can lend their assets to the traders, which can take leveraged positions
- Non-custodial lending – also known as DeFi lending or Decentral Finance lending, has 20% of the crypto lending market. DeFi focus is on the Ethereum blockchain-based assets. The key in DeFi is that the users control here their keys. The platform does not have access to the user’s private keys and the user’s assets. That’s where the term non-custodial is coming from. Users can borrow crypto or stablecoins. Borrowing fiat is not possible in DeFi lending
All these segments show the emergence of the crypto fixed income.
Crypto Fixed Income and SmartCredit.io
The key problem’s SmartCredit.io solves are the following:
- Borrowers have today too high collateral requirements (i.e. Maker, Compound have ca 350% 400% collateral ratio), meaning their capability to borrow is low
- Limited choice of collateral – Borrowers on Maker or Compound have limited choice of collateral (just 4 or 8 tokens)
- Fluctuating interest rates – most of the DeFi solutions are implementing the money-market-fund concepts. Money market funds have fluctuating interest rates. There are always herd movements in the markets. If the market thinks Ethereum is moving up, then users are borrowing DAI to buy Ethereum. This drives the interest rate of Ethereum down and DAI up. If the market thinks that Ethereum is moving down, then users are borrowing Ethereum to short it. This drives the interest rate of Ethereum up and of DAI down
- Other platforms would like to earn revenues with value-adding services (like credit as an API service)
- Investors would like to earn passive income (with no activity)
SmartCredit.io key idea is to focus on the borrowers because they are the key to lending. The lenders will follow the borrowers.
What Does SmartCredit.io Do with Personal Fixed Income Fund to Solve These Problems?
The focus on the borrowers is achieved via:
- Low collateral requirements for the borrowers
- Wide choice of collateral – borrowers can monetize more of their assets
- Fixed Interest Rate – borrowers and lenders are not exposed to the fluctuating interest rates
- Personal Fixed Income Funds – SmartCredit.io offers the Personal Fixed Income Funds, which will automatically invest, based on the rules. Passive investors will earn passive income
- Credit As A Service API and Widgets – the partner platforms can integrate “give credit” and “take credit” widgets. Borrowers can be on other platforms, but they will be still able to receive the credit via the widgets.
Additionally, Personal Fixed Income Funds:
- Are Personal – they belong to the user, which creates them and funds them
- Allow automated investments – behind every Personal Investment Fund is a smart contract which follows the investment tules
- Borrowers don’t need to wait for the funds – Personal Investment Funds will do automated investments
- Passive Lenders will receive passive income – Lenders need to define only their investment rules, they need to deposit funds and that’s it – all the rest will be an automated process
- Will invest into loans with different maturities – this allows getting exposure to the full yield curve and to earn a better return on a given risk
Personal Fixed Income Funds are practically replicating the traditional Fixed Income Funds. However, there is a big difference – there is no sharing with the other investors, there are no high fees and the funds belong only to you.
For Whom Crypto Fixed Income Makes Sense?
The crypto fixed income system, which is suitable for passive investors, provides you with a fixed, safe, and significant income. Moreover, the capital you have does not need to be very high. Your assets will be the main tool that will earn you more income.
You can register to SmartCredit.io as a borrower or a lender. The borrowers will have the advantage of fixed interest rates and low collateral ratios. The lenders have the possibility to define their Personal Fixed Income Funds, which will replicate what a traditional fixed income fund will do. However, without the high fees of the traditional fixed-income funds and with funds, which are only on your name – with funds that no one else can access.