Crypto lending has evolved as part of an alternate blockchain-based financial system. SmartCredit.io’s vision is to support the alternate financial system and to create a self-reinforcing crypto lending platform. Sounds easy, but how to achieve this?
Let’s start with the key problems in crypto lending:
Key problems in the Crypto Lending
- Borrowers have today too high collateral requirements – Maker, Compound have ca 350% – 400% collateral to the loan ratio. This means the borrowers can borrow little relative to their collateral
- 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 for example via offering credit via an API
- Investors would like to earn passive income with no activity
- The majority of existing solutions control their client’s private keys. For example, Nexo or Celcius platform is an online investment platform, which controls 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
SmartCredit.io solution to the Crypto Lending
- Non-custodial lending – only borrowers/lenders control their assets; no-one else has access to the borrowers/lenders assets
- Borrowers to have 2x smaller collateral requirements than the industry standard
- Borrowers to have a wide choice of collateral
- Lenders receive loan tokens after creating a loan. Lenders can use these loan tokens as a mean of payment (loans are tokenized and transferable)
- Holders will receive interest for the loan tokens (interest-bearing to the holder)
- Passive Investors will have “Private Fixed Income Funds”, which deliver them passive income
- Non-custodial API for the other platforms – wallets, payment engines, marketplaces.
For the Borrowers – 2-Click Crypto Loans on the Marketplace
SmartCredit.io offers to borrow crypto and stablecoins against the crypto collateral. Following is important for the crypto borrower:
- Low collateral ratio
- Fast order fulfillment
Usability – it’s about an easy loan process for the Borrower. That’s why we call it “2 Click Crypto Loans”
Low collateral ratio – What is relevant for the crypto borrowers? One of the key elements besides usability is the collateral ratio. Most of the crypto lending platforms have high collateral ratio’s for the borrower. See more in our blog articles “Why is the collateral ratio so high in DeFi?” and “Why borrowers need low collateral ratio?”
Fast order fulfillment – that’s about accepting the loan requests fast:
- The loan requests can be accepted by the active lenders via the browsing of the order book or
- The loan requests will be accepted automatically by the “private fixed income funds“, which enable a passive income for the passive investors
For the Lenders – Immediate Liquidity via Credit Tokenization and Credit Transferability
All loans are tokenized on our platform into one standardized ERC 20 contract. This tokenization makes loans transferable. The loans are protected with the collateral and loss provisions fund. This allows the lender to use the tokenized loans as payment means.
It works in the following way:
- When the loan is issued on the marketplace and Ether (or DAI) is transferred to the borrower, then the lender will receive the same amount of freshly minted credit coins (we call them Credit Coins – ccETH or ccDAI)
- 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
- 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 the 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 options means the lender doesn’t need to take the bridge loans. It means, he can use his loans, which are tokenized and value protected, to pay third parties.
To whom should the lender transfer his credit coins? There are two ways:
- The lender can do advertisements to SmartCredit.io and add new members into the network or
- The lender can send his credit-coins to the order book for the conversion. The private fixed-income funds will buy them up from the conversion requests and the lender will receive the Ethereum or DAI in return
For Passive Investors – Private Fixed income Funds
The investor needs only to define the investment rules – to which credit ratings and to which loan terms he would like to allocate which part of his assets. He does not need to monitor ongoing loan requests, but everything will run in a fully automated way.
If the lender/investor want’s to cancel the automated investment process, then he can do this by one button click. If he does this, then he is back in the manual mode.
Private fixed income funds will provide continuous liquidity to the platform, these are the assets, which will be lent to the borrowers. Additionally, if some of the lenders have liquidity needs, then the respective lenders can always send their credit-coins into the private fixed-income funds and will receive Ethereum or DAI in return for their ccETH or ccDAI.
For Other Crypto Platforms – Credit As A Service API
Many crypto platforms would like to offer credit to their users. However, lending is not their core competence and will require specific know-how. At the same time, these platforms would be interested to integrate the crypto lending via the API.
Crypto lending key components
There are four key components of the SmartCredit.io ecosystem:
- 2-Click crypto loans for the borrowers
- Immediate liquidity for the lenders
- Passive crypto income for passive crypto investors
- Credit As A Service API for all other crypto platforms
The interplay of these components results in the self-reinforcements and positive feedback loop in the ecosystem.
Our crypto lending difference to the competitors
There are several key differences from our competitors:
- Low collateral ratio – Having a low collateral ratio means that the borrowers can borrow more on their given asset basis – it offers much more leverage to the borrowers. The crypto lending market is driven by the borrower’s demand, i.e. the borrower’s needs have to be the key focus.
- 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.
- 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.
- 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.
- Crypto Credit Score via social media, ethereum blockchain history analysis, and psychometric analysis. The client can choose not to process with an automated Crypto Credit Score. However, in this case, he would be assigned to the “standard” Crypto Credit Score bucket
- 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 collateral, then the Loss Provisions Fund will take over the remaining difference.
- 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.
For more information about the crypto lending market see the following articles: