We were honored to give a SmartCredit.io Deep Dive lecture at the HWZ Zürich Blockchain seminar (https://fh-hwz.ch/produkt/cas-blockchain-economy/)
Here are our presentation slides. In the following we analyze:
- Key problems in the crypto lending
- What is the USP of SmartCredit.io
- Value Proposition to the SmartCredit.io users
- What is the Crypto Lending Market, what is the market size and market growth?
What is SmartCredit.io?
If you have only 10 seconds — here is the 10 seconds version for SmartCredit.io investors:
SmartCredit.io crypto lending platform offers:
- 2-Click Crypto Loans (credit on demand)
- Credit Transferability (liquidity on demand)
- Passive Income via Fixed Income Funds (income on demand) and
- Credit As A Service API (integration on demand)
The key idea is to create a self-reinforcing ecosystem, where positive feedback loops will strengthen the full ecosystem.
Key problems in the crypto lending
Crypto lending platforms have emerged in the last two years. As this is a new industry, then there are as well some challenges. In our view, the key challenges in the crypto lending platforms are the following:
- Borrowers have today too high collateral requirements (i.e. Maker, Compound have ca 350% collateral to the loan 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 5 tokens)
- Lenders cannot transfer their loans (or parts of the loans) to other parties during the loan term
- 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)
- The majority of existing solutions control the client’s private keys. For example, Nexo or Celcius is technically online investment platforms, which control the client’s assets. They can take the client’s funds at any time and in return, they pay interest to the client. The client can withdraw his funds, but technically Nexo / Celcius have the custody of clients funds.
Deep Dive – What’s the USP of SmartCredit.io?
SmartCredit.io Investors should ask – what is the Unique Selling Proposition of the crypto lending platform? How does the platform respond to the key problems in crypto lending?
Here is SmartCredit.io USP:
- Non-custodial lending – only borrowers/lenders control their assets; no-one else has access to the borrowers/lender’s assets. An additional advantage of non-custodial lending is the regulatory simplification
- Borrowers to have 2x – 3x smaller collateral requirements
- Borrowers to have a wide choice of collateral
- Lenders to receive loan tokens after approving the loans. Lenders can use these loan tokens as a means of payment (loans are tokenized and transferable). Or the loans can be transferred and packaged into the Private Fixed Income Funds
- Passive Investors will have “Private Fixed Income Funds” – they just define the investment rules. All the investment process after that is automated.
- Holders of the loan tokens (ccETH, ccDAI, etc) will receive interest for the loan tokens (credit-coins are interest-bearing to the holder)
- Non-custodial API for the other platforms – wallets, payment engines, marketplaces – all of them can integrate Credit As A Service API
Deep Dive – Value Proposition to the SmartCredit.io Users
But what are the key benefits to the user? Here are they listed:
- Lenders: We offer transferable, tokenized and value protected credit. Lenders remain liquid, they can use loan tokens as a means of payment. Or lenders can convert them into the underlying currencies via the Fixed Income Funds
- Borrowers: We provide the high capability to borrow for borrowers – the borrowers can borrow more on the same asset basis, than in the competing platforms
- Passive Investors: We provide Private Fixed Income Funds. The investor will define the investment rules. The investment process is fully automated after that.
- Other Platforms: We provide “Credit As A Service” API for integration. Wallets or Marketplaces would like to earn additional revenues, they have a user base, but not many possibilities to monetize their users. Offering SmartCredit.io credit services would be one of the ways for the marketplaces or wallets to monetize their user basis. SmartCredit.io manages the credit risk, other platforms bring the users and we split the revenues.
That’s how the SmartCredit.io compares to other DeFi solutions and to the Custodial lending solutions.
At the end, the key is what is important to the client? That’s how we implemented the platform – focussing on not just technical sensibilities, but on the features, which make the difference to the client.
Deep Dive – What is the crypto lending market?
Crypto lending market segmentation
There are 3 main channels for crypto lending:
- Crypto Borrowing / Lending via the Crypto Exchanges for margin trading. Crypto exchanges are the biggest player in this market. Although the crypto lending is the side business for the crypto exchanges – the interest rates will be set on the crypto exchanges. See more in the article Why is the DAI Interest rate at 10% in DeFi?
- Custodial Lending Platforms (Nexo, Celsius, Genesis Capital) – they control your private keys (i.e. they control your assets)
- Non-Custodial Lending Platforms (Maker, Compound, Ethlend, SmartCredit.io) – the do no control your private keys (i.e. they do not control your assets)
Key use cases
- Using loans for trading – ca 80% of the market will feed into the crypto exchanges. Traders use their collateral to get the loans, because either the crypto exchanges do not support these collaterals or traders get better terms via crypto lending
- Liquidity creation – instead of selling crypto, which in most countries would be a taxable event, the users would rather monetize their crypto-assets via using them as collateral for the loans. This is approximately 15% of the market
- Crypto economy – borrowing crypto for using it in the crypto- sphere – 5% of the market
We estimate the market size of custodial and non-custodial lending platforms as ca 20 Billion USD in 2019
- Graychain estimated in Q2 2019 the crypto lending market size as 4.7 Billion USD (Source: https://reports.graychain.net/TheCryptoCreditReport-q2-2019.pdf)
- Celsius has originated loans for 4.25 Billion USD in 2019 (Source: https://www.prnewswire.com/news-releases/celsius-hits-4-25-billion-in-originated-crypto-loans-setting-the-bar-for-crypto-lending-industry-300956493.html)
- Genesis Capital did loans of 3.1 Billion USD in 2019 (Source: https://genesiscap.co/insights/q4-insights-2019/)
For custodial lending platforms we need to refer to the self-reported numbers; for the non-custodial platforms, the data is available via the blockchain.
Our analysis shows a 25%-35% quarter to quarter growth of the market (see the blog article: Top Crypto Lending Platforms for Fixed Income (Guide)). This is understandable because during the hype period investors were not looking at the interest income (they made their 10x anyhow). However, as the market turned and as more of traditional investors enter the crypto markets, then there is a shift to the fixed income.
Additional information for SmartCredit.io Deep Dive
For more information check out the related articles from the SmartCredit.io blog: