Friday, August 30, 2019

Lending stable coin threatens traditional banking

Crypto seems to look more and more like the banking sector, as more projects launch and mature that resemble bank activities.  Recently we have written about security service Blackwatch Digital and their secured and insured custody service.  Now we are researching a unique stable coin and lending platform known as MyConstant.

What we like about this is that it truly resembles a platform, the way Crypto was intended to be designed.  In the platform lenders can choose their own terms, no credit check, and no nonsense – and find borrowers.  It’s all backed by a stable coin like the US Dollar so there’s no volatility worries in loan calculation.  This is really a micro-finance product they are just using Crypto as the underlying technology.  Frankly, programming a system like this using the US banking system, would be expensive, cumbersome, time consuming, and who knows what it might look like after all the regulatory approvals.

We should note that Constant began as a stable coin and evolved into the lending platform it is now – a healthy and normal evolution.  Borrowers need money and lenders want return on their money.  The platform charges a reasonable 1% fee on all transactions.

Pre IPO companies like Circle are snapping up startups, according to Crunchbase Unicorn Circle has already purchased SeedInvest, Poloniex, and Trigger Finance.  Are companies like MyConstant next?  As the platform proves itself, it may be an easy acquisition target for some of the Crypto ‘big boys’ to integrate into their existing ecosystem.  That’s what companies like Circle are likely waiting on.  Why invest in R&D when you can let the market do that, and then swoop down with boatloads of cash for a quick sale and acquisition? 

That’s the Microsoft strategy, who bought more than 10,000 companies in their lifetime.  It may be the strategy used by many of the larger firms in Crypto, copying the success of Microsoft.  It has always been a big question, why don’t firms engage in more R&D.  Perhaps this is why.

Stablecoins are a new type of cryptocurrency that often have their value pegged to another asset. These coins can be pegged to fiat currencies such as the United States dollar, other cryptocurrencies, precious metals or a combination of the three. Fiat seems to be the most popular option in the marketplace right now, meaning one unit of a stablecoin equals $1. Stablecoins are designed to tackle the inherent volatility seen in cryptocurrency prices. They are normally collateralized, meaning that the total number of stablecoins in circulation is backed by assets held in reserve. Put simply, if there are 500,000 USD-pegged coins in circulation, there should be at least $500,000 sitting in a bank.  With bitcoin suffering abrupt crashes and sudden gains, advocates believe stablecoins help eliminate doubt about conversion rates — making cryptocurrencies more practical for buying goods and services.  Examples of the best-known stablecoins include tether (USDT), trueUSD (TUSD), gemini dollar (GUSD), and USD coin by Circle and Coinbase (USDC). Demand for such coins has been growing. In December, Cointelegraph reported claims that four major stablecoins had clocked up $5 billion in on-chain transactions within just three months — enjoying a 1,032% surge in November compared with two months earlier.

The reasons to use stable coins are clear – and it’s also a logical obvious fit for a lending platform.  There’s no reason to mention that lending is a growth business; lending is the main service of the banking environment in the world.  Only in the US, personal loans equal $138 Billion with a “B” according to CNBC:

Total outstanding U.S. consumer loans hit a record last year, driven by digital-first lending options. Financial technology, or fintech, companies now make up 38 percent of the personal loan market — up from just 5 percent five years ago, according to new data from TransUnion. “The rapid growth in consumer loans sits squarely on the shoulders of fintechs,” says Jason Laky, senior vice president and leader of TransUnion’s consumer lending line of business.

Fintech makes up 38% of that, and Crypto certainly is Fintech.  So what’s next?  It’s a simple move, to start using Crypto for your borrowing needs.  Bitcoin has already been used to purchase real estate.  There are even services that will facilitate Crypto purchases of real assets.  So Crypto lending isn’t so far-fetched after all.  Perhaps, as explained in Splitting Bits in 2017, we are all just one byte away from a Blockchain based financial system.