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- Автор : JoJocage
- 08.07.2020
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Btc p2p loan
What Is Traditional Global Lending? Since the introduction of modern banking, the lending process has been a crucial driver of economic development. In general, a lender provides money, property, or other assets to a borrower under the premise that the borrower will return the assets or repay the lender in the future.
More specifically, lenders extend credit to borrowers, which means borrowers must repay the debt. In most cases, lenders provide borrowers with loans in cash, also known as fiat money. Traditionally, an intermediary — a bank, for example — facilitates the entire process and acts as the primary authority in the transaction. These financial institutions bring borrowers and lenders together. Within this framework, a set percentage of bank deposits serves as credit for borrowing customers.
In other words, a mere fraction of the amount of money deposited by customers and loaned out to borrowers is actually held in reserve by such banks at any given point in time. One weakness of this system is that if the majority of customers withdraw their money at the same time — in what is known as a bank run — the bank might not have enough money in reserve to reimburse the majority of its customers all at once. This can prove highly problematic, not just to borrowers and lenders, but to entire macro-scale economies.
Financial Technology FinTech and Peer-to-Peer P2P Lending Although historically central banks have usually dictated benchmark interest rates, private lenders often compete with one another to win business. Banks and credit unions have historically been the primary source of consumer credit. However, this dynamic has been shifting as crowdfunding and peer-to-peer P2P lending platforms like Kickstarter and LendingClub experience widespread adoption.
Financial technology FinTech and open finance platforms like these can help make financial services more accessible and convenient to the general public. At the same time, these solutions are generally still integrated with the traditional banking system and utilize its centralized infrastructure.
How Does Crypto Lending Work? In contrast to fiat-denominated lending, which tends to occur on conventional Web 2. These digital assets are built on decentralized blockchain technology, which can help make them more transparent, tamper-resistant, and pseudonymous. As crypto adoption accelerates, countless crypto lending platforms have emerged to facilitate financial activity across the decentralized economy.
The earliest crypto lending initiatives solved inadequate cash flow by emulating traditional lending products. Crypto lending platforms can unlock the utility of digital assets by securing crypto as collateral against loans. As a result, crypto holders can obtain loans denominated in fiat or other cryptocurrencies without losing control of their assets. However, they also need cash to fund an unexpected expense and have no other source of capital. Crypto lending is beneficial in this scenario because investors can receive a crypto-backed loan by utilizing their ETH as collateral, while holding on to an asset that may appreciate in value.
However, this process currently operates with a standard requirement of over-collateralization. Most crypto lending protocols require excess collateral to help protect the lenders against crypto price volatility. Although traditional financial institutions also issue loans as a fraction of collateral value, this ratio is often near 0.
However, in the fast-developing landscape of DeFi, more and more financial products are approaching collateralization in increasingly novel ways. Centralized Crypto Lending While essentially all crypto lending involves exchanging digital assets in one form or another, the underlying infrastructure of a crypto lending platform dictates whether the process is centralized or decentralized. Centralized crypto lending, a subset of centralized finance CeFi , occurs on platforms that emulate traditional banking regulations and infrastructure.
These platforms usually assume custody of customer deposits and implement processes to help ensure collateral is stored securely, often integrating cold storage solutions. Some CeFi platforms also offer deposit insurance. Although setting up access to a CeFi solution can be time-consuming, there are inherent benefits to using a regulated crypto lending platform with structures and policies that are familiar to traditional investors. Blockchain is decentralized no central entity like a bank.
Powered by blockchain technology and some of its benefits, like being trustless, makes crypto lending different from lending dollars or Euros. Data Transparency Part of the ethos of cryptocurrencies is transparency. We talk here often about the transparency at platforms and how important it is. ANY crypto platform will have lots of statistics from their platform and information to share with you as a potential lender. Many crypto platforms get regular audits to show proof of their reserves and overall financial health.
The Cryptocurrencies You Lend Are Different than Fiat Money For something to be money, it has to be a unit of account, store of value, and a medium of exchange. With crypto, we and those we lend to get a common unit of account. Having a common unit of account is an essential feature as it enables transactions between people living anywhere in the world without the hassle and fees involved in exchanging fiat currencies.
When you are lending cryptocurrencies, you are lending one of three options: Bitcoin, Ethereum or Litecoin, which are known as Layer 1 Networks. This is the option most similar to how people think about money created by a Central Bank. In these cases, the production comes not from a Central Bank but from the blockchains. These coins focus on price stability.
Other mostly Ethereum based tokens. Ethereum has a standard for tokens called ERC Most tokens are ERC based and compatible, making them easy to lend and borrow. Lending these tokens is like lending or borrowing in assets with a commonly known value like artwork, wine, or stamps.
There is a known market for these assets, and they have value, but they are not directly money themselves. They are not a unit of account or a medium of exchange. The point is that other assets that have value but are not money are lendable as cryptocurrencies, where only fiat money is lendable in the traditional economic system.
This means more flexibility for you as a lender. Collateralized Lending The idea behind crypto lending is that any crypto lender can lend to any crypto borrower they want. And how do platforms make this happen? Two ways: Cryptocurrency and Collateral. The only way to protect lenders coming from economic and credit systems as different as these is through the collateral.
Every loan on a crypto lending platform is overcollateralized. Now why would someone borrow money in this way? Some reasons include: Personal Needs or lack of personal liquidity. Tax implications in many countries are different for borrowing than selling. A temporary cash need. You believe its value will continue to grow.
Use of Smart Contracts Starting on Ethereum and dominant on their network, smart contracts are key in protecting lenders. A smart contract is a self-executing contract where the terms are preprogrammed into the contract. The technology monitors the contract AND enforces it for you. If the terms are not satisfied, the algorithm in the contract notices.
The algorithm automatically enforces the terms returning your collateral to you and taking the collateral from the borrower. The amazing thing about this technology is that you, as a lender, are not reliant on people or the platform for enforcement. We discussed earlier how blockchain is a trustless system where trust in another centralized entity like a bank is not required. The use of a smart contract is trustless, too. You are not trusting the platform to enforce your lending terms.
The contract itself does it. Courtesy of Assets on Blockchain Crypto Lending Liquidity Pools Another big difference when lending crypto compared to fiat money is that it provides you with an option aside from p2p matching. You can bypass the whole process of p2p lending if you want. You can invest your crypto into a liquidity pool that lends your money out at a fixed rate to any borrower who puts up the required collateral. This method is easy, fast, and your money is working right away.
This method is popular. Compound is not the largest of the DeFi crypto lenders, yet they would be in the top 10 in funding volume if we put them on our front page. They would rank higher than well-known platforms like Twino and Bondora. Crypto lending is here to stay. Now we will look at some of the platforms themselves. Best Crypto Lending Platforms The peer-to-peer lending and liquidity pool options in crypto p2p lending make for two good passive income opportunities for lenders.
You can see how with factors like: openness and transparency of data and use of money that is outside the existing financial system that legacy financial institutions would see this as disruptive and threatening. And you would be right.
Because the technology is so new, the opportunities are excellent and will be for a while. This is nowhere near an efficient, competitive market like the market for oil, sugar, or Eurodollars. Instead, because it is new, you can earn outsized returns without the outsized risks while the rest of the world discovers what crypto is about. Below, we will explain how these platforms are using the cryptoeconomy to their advantage along with a brief guide on how to get started as an investor or borrower.
You will need to convert your home currency to crypto on an exchange. If you want to borrow on a crypto lending platform, you must own an accepted cryptocurrency to use as collateral for the loan. You will need an approved asset to borrow or lend on these platforms. In May , MyConstant launched its crypto lending platform.
Their goal is to tackle some of the central challenges with the traditional economic system discussed earlier in this article. To solve these problems, the Constant team wants to deliver on two central areas: Give investors control over amounts, rates, and terms. This avoids human errors in credit checks and risk evaluation. How does the MyConstant crypto lending platform work?
For greater depth, check out our detailed review of MyConstant. Your best option depends on whether you want to control who you lend to or earn more interest in certain cryptocurrencies. The Flex option takes advantage of the liquidity pools we mentioned. Your money goes into a pool and is lent right away with no waiting and matching. There are three great benefits with this option: You can withdraw anytime you like There are no fees except possibly from your wallet or exchange Interest is compounded constantly.
No waiting to start to earn interest The crypto p2p program works the same way as other peer-to-peer matching programs in fiat currencies. All loans are fully backed by collateral, which is sold if a borrower defaults on payments. The forced sale on default is written into the smart contract.
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Reputation systems exist but they can and have been cheated, being extra cautious is mandatory if you are going to put your Bitcoin in P2P lending. Debts can still be repaid and funds withdrawn, but, am I the only one that believes a bunch of defaults are on their way? But borrowers also face their own problems: the rating systems designed to fight scammers may also punish too severely honest borrowers if they default in a loan. Avoiding defaulting could lead a borrower to take another loan, translating into an enormous cost.
When a trader spots what he believes is a great potential to get profit, he can borrow some money to invest more than what he currently has. The amount a person can request depends on the funds he holds at the moment and the leverage that the broker or exchange allows. Basically, the account balance of a trader must be all the time over the borrowed amount plus any interests due, if that level is broken any open positions will be liquidated and the lenders will receive their money with profits back.
How does it work? The only platform where lenders can actively put their money into a margin trading lending fund is Bitfinex. Users are free to set any amount they want and own of coins for lending, configuring the period and expected interest rate decision which can be left to the platform, under the flashing return rate.
When a trader decides to use its leverage, open lending positions are automatically matched, serving first those asking for less in return. You can get anything from 0. The average rates for margin funding are available in the statistics page on the Bitfinex website.
What are the Benefits? This kind of loans also enables shorter terms, they can be issued for just a few days instead of the weeks or months required by lending platforms. Interest rates also fluctuate with the market, giving the investor the possibility of obtaining better rates either by funding short-term loans or freezing his money in a longer one at a fixed rate.
What are the Risks? Margin call most of the times work as expected, but sometimes a sudden market variation against the trader-borrower takes more than expected from his balance with the loss being passed to the lender. Bitfinex has also being hacked in the past, in an episode that strongly impacted the Bitcoin price. They have probably doubled their security measures since the incident, but what already happened could happen again and you have to remember the investing maxim: invest only what you can afford to lose.
Conclusion Bitcoin lending, whether it is peer-to-peer or for margin trading, is a risky investment option, where defaults, volatility and other risks are the order of the day. But risk is an inherent part to investing, and if your nerves can afford dealing with it, Bitcoin lending offers an excellent opportunity to profit, and a market that is still novel and at your disposition. Banking with Bitcoin is different than the way fiat loans work.
Btcpop chose to focus on cryptocurrencies implementing POS staking, an altcoin exchange, and other cryptocurrency related features. People with money that want to lend it and earn interest connect with others that want a Bitcoin loan and are willing to pay interest. It is sort of like taking a loan from your rich uncle, but instead of your uncle its others around the world. Borrowers have to verify their identity and work to prove their credit worthiness.
They can do this by verification, linking accounts, or slowly building a repayment history like you do to build your credit rating. They then publish their loan on the platform and anyone from around the world can act as an investor and invest in their loan listing.