All loans are tokenized on our platform into one standardized ERC 20 contract. This tokenization makes to loans transferable. The loans are protected with the collateral and loss provisions fund. This means the lender can use the tokenized loans as a mean of payment.

It works in the following way:

1. When the loan is issued on the marketplace and Ether is transferred to the borrower, then the lender will receive the same amount of freshly minted credit coins (we call them Smart Money tokens)
2. The lender can keep all these credit coins till the end of the loan, by when they will be replaced with the borrower’s interest and principal payments.
3. Or the lender can pay with the credit coins the next parties, which can pay the next parties and so on. The final holders of the coins will receive interest and principal payments.

This means that the lenders will be liquid even after they lend out their assets — they can use the credit-coins, which get assigned to them, to pay the third parties.

Why is having liquidity important? Let’s imagine, that lender has lent out all his funds but needs to make some un-expected payments to third parties. The only way for him would be to take a loan. That’s how it would work on all fiat P2P or crypto P2P lending platforms — except SmartCredit.io.

Having liquidity option means the lender doesn’t need to take the bridge loans. It means, he can use his own loans, which are tokenized and value protected, to pay the third parties.

How would lender know who would like to receive his credit coins? There are two ways — the lender can do advertisement to SmartCredit.io and add new members into the network or he can send his credit-coins to the private fixed-income funds and receive the Ethereum in return.

There are several key differences from our competitors:

1. Tokenization of Credit and creating Liquidity for the lender — we are the only ones doing this. We are tokenizing the loans into the standardized ERC 20 tokens. The holders of these tokens will receive the interest and principal payments of the underlying loans. If the lender does not transfer these tokens to third parties, then the lender will receive all principal and interest payments. If he has transferred some of the tokens, then interest and principal are distributed pro-rata from between token holders.
   Tokenization of credit results in the liquidity for the lender — he lent out his assets, but he is still liquid after he receives freshly minted credit-coins, which lender can use as mean of payment to the third parties.
2. Private keys belong to the clients — no one else can access the client’s assets. Although it sounds too basic, most of the platforms have not implemented it so — either the clients have to transfer their assets into dedicated platform controlled wallets or there are multi-signature on the addresses. In both cases, it’s not the client, which controls the assets.
3. Fully decentral marketplace — if platform controls client assets, then this results in regulatory requirements for every borrower’s jurisdiction (usually it’s the financial intermediary license). As most of our competitors do not have these licenses and as the number of users is continuously growing, then it’s the only question of time, till the regulators will awaken and will «drink some tea» with the respective providers.
4. Automated credit risk rating via social media, ethereum blockchain history analysis and psychometric analysis. The client can choose not to process with an automated credit risk rating, in this case, he would be assigned into the «standard» credit risk bucket
5. Loss Provision Fund. Our competitors need always to prepare for the worst. I.e. they have to significantly overcollateralize to loans on their platforms (so that they can sell the collateral in case of adverse market events). Having Loss Provisions Fund and allocating a small piece of every loan into the Loss Provisions Fund allows better to deal with the adverse market events and to reduce the collateral requirements.
   If the borrower is defaulting, then his collateral will be liquidated. If it’s not enough of collateral, then the Loss Provisions Fund will take over the remaining difference.
6. Self Re-Inforcing Ecosystem, which provides usability to the borrowers; immediate liquidity to the lenders and passive income to the investors on their crypto holding. And on every step, it’s only the client who controls the private keys. Only the client and no-one else.

Hi guys, this is Tarmo speaking.

Hi guys, I’m Martin, I’m Co-Founder of SmartCredit.io. We are here in Zurich in one of the financial centers in the world. And we are in the heart of the financial center in the old town of Zurich.

Martin, you are Co-Founder of SmartCredit.io. What is the idea of SmartCredit.io?

The key idea of SmartCredit.io is to create credit-money for the crypto sphere. If you are thinking of Bitcoin, everyone speaks about the Bitcoin, but Bitcoin is just the base money-in the same way the base money, as central banks are creating the base money.

But let’s think on the economy. In the real economy, people are using credit-money. Base money is 3% — 7% of the money and 90% to 97% is the credit-money.

If you are thinking of Bitcoin and Bitcoin economy then we have only base money. Real economy needs credit money. It has not been so in the last 5 years or in the last 50 years. It has been so for the last 5’000 years.

There is a simple reason for this — production, farming — it needs time. We have to pay for energy, we have to pay for the labor, we have to pay for the time. Everything needs to be financed. And this financing, in the last 5’000 years, has been done with the credit and credit-money.

Back to the Bitcoin — Bitcoin is missing the credit-money approach. What we want to introduce is the credit-money approach into the crypto sphere and to achieve this enabler of higher penetration of crypto technology and decentralization of the economy.

How does the credit-money creation work today?

Let’s speak about the base money creation — created by central banks like Swiss National Bank, European Central Bank or Federal Reserve — the base money.

But the credit money is created by private companies — these are the commercial banks. And credit money has to be legally accepted as a mean of payment. Private companies are creating fiat money and public people have to accept it.

How is it created — it’s created in the lending transactions. If I am taking a loan from the bank, then the bank is actually creating new credit-money and he is lending me this credit-money. Bank does not own the money, what they are lending to me; they are creating it and this is a legal mean of payment in the respective national economy.

You mentioned lending, but lending is a risky business?

Everyone is saying that lending is a highly risky business. Now, let’s look from this way — commercial banks have most of their business created through lending.

If we are taking a traditional bigger commercial bank, then 40% or so of the profits are through the lending business. The lending business is a money creation business.

Commercial banks are doing the risk analysis of the clients, they are calculating how much a client can borrow and all other parameters. Commercial banks are doing this for many years, they are doing this for hundreds of years. They have developed the systems and like said — around 40% of commercial banks profits are created through the lending business.

Do you want SmartCredit.io to become a decentral commercial bank?

We have commercial banks, they are creating credit-money, and in SmartCredit.io our aim is as well to create credit-money for the crypto sphere. But we do not want to be a bank.

We want to be a marketplace — we want to be a marketplace, where we are connecting borrowers and lenders globally. So that people can provide to each other the credit and from this credit, we create the credit money to pay the next persons.

Actually, we are doing everything that commercial banks are doing. But we are doing this without being a bank — we are doing this by being a marketplace.

Very interesting! Let’s take customers viewpoint — what can customers get from SmartCredit.io?

Let’s take a borrowers viewpoint and let’s take a lenders viewpoint. For the borrowers, it means a very advanced credit process. We are doing automated credit risk rating by the registration, so we know credit risk and borrower gets fast process. Compared to our competitors we have many advantages and much less collateral and so on. So, that’s for the borrower.

If we are looking on the lender — the key advantage of our system is — when I’m lending Ether to another peer-to-peer person in the world — I’m lending out my Ether and I’m receiving Smart Money tokens, which is the crypto credit-money and I can use this crypto credit-money to pay the next persons.

So, I’m lending out my money, my Ether; and I receive crypto credit-money — Smart Money tokens, which exists as long, as the loan exists, and I can pay next persons with this.

Sorry, do you mean that I can earn profit and in parallel I am liquid?

Exactly. That’s what the commercial banks are doing at the moment — they are liquid and they earn a profit — because they are creating credit-money.

So, I can earn profit from my Ethereum funds and still have liquidity. It sounds like a miracle?

Again, commercial banks are doing this. When I am a lender, I’m lending out my money, I’m receiving crypto credit-money. And this crypto credit-money, the Smart Money tokens, are the mean of payment to pay the next parties.

Commercial banks are creating credit-money, I’m as a borrower- I’m receiving it. In SmartCredit.io as well we are creating the Smart Money tokens and through this the lender has liquidity. He has immediate liquidity.

And not only that he has liquidity — who is keeping Smart Money token, will receive as well interest. If I am passing my tokens to the next person, then he will earn the interest; if I am passing to the fifth person, then he will earn the interest. So, it’s pro-rate interest is earned from the holders of the tokens.

So, it’s not only that I have liquidity — we distribute as well the profits from credit creation to the peer-to-peer network.

It sounds wonderful! Can you tell a little bit more about these Smart Money tokens?

SmartMoney tokens represent the claims. There is a borrower and there is a lender. The lender is receiving Smart Money tokens. If the lender is lending 5 Ethers, he will receive 5 Smart Money tokens. And the owner of Smart Money tokens is as well the interest.

Smart Money tokens are backed up with the respective claim, with the respective lending contract. Smart Money tokens are protected, that means their value is always one Ether. We have a protection mechanism, it’s a unique protection mechanism, which is protecting the value of Smart Money tokens.

If commercial banks are creating the credit-money, they are protecting the value of credit-money through their balance sheets and reserves. The same way SmartCredit.io is protecting the credit-money through own protection mechanism.

So, this means — Smart Money token represents the claim, it can be used as a mean of payment, it collects interest to the holder and its face value protected.

Sounds really like a break-through innovation?

What we are doing — we are just mirroring what commercial banks are doing today. Commercial banks are doing this in a centrally. It has been so because of scale effects and lower transaction costs.

Thanks to the blockchain it will become possible to do all this what commercial banks are doing in the lending business, where they generate 40% of their profits to the view instead of the many. Thanks to blockchain technologies it will be possible to decentralize all these logics — for the benefit of many instead of the benefit for the few.

What are your future plans?

The first step is to create a decentral marketplace for the credit, then we create credit-money. The second step is to create a crypto credit- card. But this is not the credit-card or debit-card, which are connected with the huge existing credit card businesses.

We want to create virtual crypto credit card, without having any connectivity to existing credit card businesses, but having only SmartCredit.io account, which you can use the in online shops and by the online merchants.

So, you can buy from an online merchant on credit and it’s all backed up with the Smart Money tokens in the same way as in lending transactions.

So, the first step is — we are creating a peer to peer decentral lending and the credit-money; the second step is — we are creating virtual credit cards, what can be used in the online processing.

Here is the transcript:

Hello guys, I’m Martin, Co-Founder of SmartCredit.io. We are here in Zurich, in the heart of one of the biggest financial centers. We will speak today about credit and credit-money.

Martin, how do worlds credit system work currently?

It’s actually a pretty simple system, but it’s made very-very highly complex, so that’s it difficult to understand. But let’s explain it in this way:

One one side there are central banks, they create the base-money and they try fo control the speed of monetary expansion. One other side we have commercial banks and commercial banks are creating the credit-money.

What is the exact role of central banks in this system?

Central banks are creating base money — these are the coins and electronic base money. In parallel the central banks, what they are trying to do is to control the speed of credit-money creation. Credi-money is created by the commercial banks, it’s ca 90% — 97% of the total money. The base-money is 3% — 7% of the total money.

And what central banks are trying to do is to manage this system.

And how successful are central banks in controlling the growth speed of credit-money?

That’s a point of a view, depending whom do you ask. If you ask central bank guys, there are many of them, then they will tell you obviously that it’s very successful.

My comment on this is — economies are living systems. And to control living systems from a part of the living system is quite difficult. We see that the credit-money growth has been actually the cause for the most of economical crisis — the Russia economical crisis or Asia economical crisis. If credit-money is growing too fast, then there will be as well the phase where credit-money will be declining. The decline will result in recession.

Obviously, central banks are saying that they are doing a perfect job, but there are different views about this topic.

You speak about the credit-money and you speak about the credit. What is the difference between these two?

Credit is so that anyone can give credit to anyone — it’s our basic right, it’s basic law — I can give credit to anyone. Credit is becoming credit-money if my counterparty is giving me a claim (I’m a lender in this scenario) and I can use this claim as a means to pay the next persons. That was the way how the earlier monetary systems worked.

Practically the credit-money was created decentrally, it was created peer to peer. And there was the base-money, which was then created by the kings, the sovereigns. On top of the base-money, was the credit-money, which was created by people for people.

And concerning credit-money — the amount of credit-money, why is the amount of credit-money important?

We have a base-money, that’s what central banks are creating. The economy is growing, it’s like a living organism — if a living organism is bigger, then organism needs more blood in his body. If a living organism is smaller, then he needs less blood.

And the credit is like the blood in a humans body. If there is fast economic growth, then we need automatically more credit. If there is low economic growth, then we need less credit. This problem cannot be solved with the base-money only, this problem has to be solved with the credit-money. That’s why the credit-money is very important for economic development.

If there is no credit-money, if there is only the base-money, then it will probably end up in the deflationary economy, because the price of the money will be too high for the fast growth phases. That’s the reason for the credit-money.

In today’s world, we have commercial banks and central banks. When did the commercial banks emerge?

People think that commercial banks have been there forever. Actually, it’s not so. The commercial banks started to emerge like 350 years ago. The first central bank was created in Sweden, it was around the 1660’s; the second one was created in London around the same time.

And the first commercial bank was Netherlands Wechsel and Handelsbanken, the role of this bank was to trade the wechsels, because peer to peer money creation was based on the wechsel, in English: bill of the exchange system. That’s the first commercial bank was created.

However, the economy worked as well before, and it worked pretty nicely before the commercial banks were created.