The blockchain-based lending market is experiencing a remarkable recovery after a challenging year in 2022, marked by a series of collapses and crises in the cryptocurrency sector. According to information from Bloomberg, since the beginning of 2023, active loans in this area have grown by 55%, signaling a revival of blockchain lending.
This increase is evidenced by the growth to around $500 million in blockchain loans, as reported by tokenized credit tracker RWA.xyz. Although it is still below the peak of 1.5 billion dollars recorded in June last year. This recovery is an indication of the market’s resilience and potential.
Centrifuge, one of the main players in the tokenized credit sector, has been leading this market with $257 million in active loans. This data reflects not only the recovery of the sector, but also the growing confidence in the use of blockchain technology for loans.
What are the advantages of blockchain lending?
One of the advantages of blockchain loans is the possibility of offering lower interest rates compared to traditional credit lenders. Interest rates for crypto loans, for example, can be less than 10%, while rates from traditional lenders are often in the double digits. This difference can be attributed to the transparency of blockchains and the automation provided by smart contracts, which reduce the associated risks.
Agost Makszin, co-founder of Lendary Capital, commented on these lower funding rates, attributing them to the agile and efficient nature of blockchain-based private credit. These characteristics make the sector more attractive and accessible, especially compared to the slower and more complex process of traditional private credit.
Blockchain lending spans a variety of sectors, including consumer loans, auto loans, fintech, real estate, carbon projects and crypto trading. Consumer and auto loans are particularly significant, making up more than half of total loans.
What do the authorities have to say?
Jeremy Allaire, CEO of Circle, highlighted the growth of on-chain private credit markets. However, he points out that it still represents only a fraction of the traditional private credit market, which is valued at 1.6 trillion dollars.
Despite this growth, the crypto lending industry still faces challenges, including banking barriers, unequal access to banks for crypto companies, and skepticism from traditional finance towards blockchain technology.
Protocols such as Centrifuge, Maple Finance and Goldfinch are leading the recovery, offering access to investor funds and allowing borrowers to access the funds under terms set out in smart contracts.
Sidney Powell, co-founder of Maple Finance, highlighted the strategy of using blockchain and smart contracts to manage loans. The modality is a more efficient and faster way, seeking competitive advantage.
While there is still uncertainty about the future reach of blockchain lending, the tokenization of real-world assets could broaden the collateral and lending options available.
The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing or trading cryptocurrencies carries a risk of financial loss.