The Crypto-to-Cash Phenomenon
A new business model has formed recently called crypto-to-cash lending and this new financial sector is growing exponentially. The phenomenon follows the modern rise in recent years of peer-to-peer lending offered by financial giants like the Lending Club. Right now there are a few operations that are attempting to break the mold when it comes to this type of lending with projects such as Unchained Capital and Salt Lending taking the lead.
Then there is a new startup called Nexo that plans to provide crypto-infused instant credit to borrowers without the need for credit checks. VCs like the Techcrunch founder Michael Arrington, and others recently pumped $50Mn into Nexo and the company has a security partnership with Bitgo. Nexo believes it will be the first firm to provide instant crypto-backed loans as it states on its website:
Don’t sell your crypto — Don’t lose the upside potential — Get an instant crypto-backed Loan from Nexo.
Two Lending Projects Trying to Make a Mark in the Crypto-Lending Industry
Unchained Capital is a firm that offers cash loans to businesses and individuals who provide Bitcoin Core (BTC) as collateral. The company believes cryptocurrency holders need a method to borrow against their digital assets without selling them. Unchain Capital’s interest rates are between 12.5-14 percent APR and funds are wired to a bank account of the customers choosing. Customers make monthly payments on the loan and once the credit is paid in full collateral will be reimbursed. Moreover, individuals can borrow up to $1Mn without a credit check and the ratio of loan appropriation is 50 percent.
If the value of the collateral drops by 25 percent Unchained Capital will request more capital. If the digital asset dips below the 45 percent region the company can repossess the capital to recover any lost principal and interest. Unchained Capital loans USD to American residents and businesses with options to renew a loan when it comes to term. Both individuals and businesses may want to utilize a loan for tax savings as borrowing removes the need to pay capital gains.
Then there is another program called, Salt Lending, a blockchain-backed loan program built on top of the Ethereum network. SALT tokens are created from the ERC-20 branch. The Salt Lending platform is more peer-to-peer than Unchained Capital as it lends funds from a large group of Salt lenders. The project has gained a lot of attention and has lent over $40Mn USD worth of digital currency loans since the project’s inception. Further, the Salt Lending platform has accrued over 65,000 members in less than a year. Just like Unchained Capital once a loan is paid back on the Salt Lending platform then a borrower can obtain their cryptocurrency again.
According to Salt under Regulation D of 17 CFR § 230.501 et seq., all lenders are accredited investors who have passed a “lending suitability test.” There are various ways a lender will participate with the Salt Lending system and loans are processed using traditional financial markets. Salt users can borrow funds between $10,000 and $1,000,000 and no credit check is required.
A New Peer-to-Peer Lending Economy Emerges
Crypto-to-cash lending has been a trending business model in this industry for well over a year and there are other platforms trying similar ventures like Coinloan, Othera, Ethlend, and Everex. The popularity of this type of business is growing due to the many benefits loans like these offer such as lending without credit checks, and the ability to obtain fiat based off crypto reserves without paying capital gains. It’s likely there will be a lot more startups attempting to enter this market as the Crypto-to-cash lending economy is growing vibrant.