What is the main value proposition of decentralized cryptocurrencies? Censorship-resistance? Cheap remittance? A store of value? A hedge during economic uncertainty? Crypto assets, bitcoin especially, can be all these things and more to their holders. As the decade-long experiment Satoshi Nakamoto kickstarted enters maturity, however, more valuable use cases are emerging. Chief among them is lending.
In an industry that still revolves largely around speculative trading of over-leveraged assets, crypto lending isn’t the most exciting of concepts. But then it was never meant to be. It’s a practical solution, both to the question of “What should I do with my cryptocurrency?” and “How can I save without being penalized?” In the consumerist world concocted by Keynesian economists, credit is cheap and consumption is everything. In their quest to attain growth at all costs, consumers have been convinced to spend, spend, spend, with diminishing interest rates putting paid to any notion people might have of setting something aside for a rainy day. Enter crypto lending. Like bitcoin, it is in many ways the antithesis of everything the global economy represents.
Crypto Lending Provides a Reason to Save
If the dollars in your bank account will be worthless by this time next year, there’s little incentive to accumulate them. Far better to fritter them away on cars, clothes and all the other trappings of modern life; at least that way you’ll derive some fleeting enjoyment from your funds. Bitcoin, with its fixed monetary supply and emphasis on saving (hodling) rather than recklessly consuming, is the polar opposite of this.
Over the years, the crypto community has learned the value of hard money, been primed on the perils of inflationary fiat currencies, and become au fait with terms like “quantitative easing” and “the Cantillon Effect.” The emergence of crypto lending aligns perfectly with the ethos on which Bitcoin is founded. Lenders – i.e. savers – now have a means of retaining their crypto while earning a passive return on their holdings. These returns are that are not to be sniffed at, either; companies like Cred offer an APR of up to 10% to lenders of cryptos like BTC, BCH, and LTC. Good luck obtaining a comparable rate from your bank.
In an industry first, Cred has also sealed a partnership with the Litecoin Foundation to roll out financial services to LTC holders, delivered via a standalone application overseen by the non-profit Foundation.
The partnership opens the door for crypto communities to access other services that Cred provisions while leveraging the company’s considerable regulatory, tax, and capital markets expertise.
Crypto Lending Allows Borrowers to Borrow
Crypto lending isn’t just about letting HNW cryptocurrency owners increase their holdings without raising a finger: it also provides a valuable service to those on the other side of the deal – borrowers. Getting a loan from your bank to start a business used to be relatively straightforward. Today, if you’re not fortunate enough to have a house you can pledge as collateral, you can forget about it. Banks simply aren’t interested in lending to small businesses, sole traders, and entrepreneurs.
Crypto lending, on the other hand, provides short and medium-term funding for the sort of individuals who are overlooked by banks and credit agencies. Gone are the days of needing to fill in a mountain of paperwork and be left in limbo for weeks, only to learn that your application has been denied. In its place is a system where anyone with the crypto to collateralize can obtain a stablecoin or fiat currency loan in minutes, allowing entrepreneurs to innovate without having to liquidate their worldly assets.
Early Days But Signs Are Positive
Crypto lending is not a panacea that can solve all of the financial problems wrought upon the world by central banks and their cheerleaders. Indeed, the nascent industry introduces its own challenges, including inefficiencies due to over-collateralization of crypto assets, and the risk of smart contract bugs in the underlying infrastructure. What crypto lending does, however, is to provide a gateway for those who have refused or been refused by the traditional financial world order.
If liquidating your crypto holdings every time you have a cash crisis incurs tax complications, with crypto lending, you don’t have to. And if your bank is now offering a negative interest on savings, you can opt-out and keep your wealth in an arena that will provide a return commensurate to its value.
Likewise, if you are a borrower seeking a quick loan that doesn’t command an eye-watering APR. Lending is by no means the only use case for crypto – from voting to derivatives and gaming to insurance, digital assets and blockchain technology have left few spheres untouched. Lending, however, might just be its most practical application yet.