Bitcoin and cryptocurrencies, in general, have come a long way from the early days when they were regarded as an internet bubble waiting to burst.
However, even after a decade, one constant criticism is that digital assets haven’t found a niche, and cannot be spent as easily as it has been advertised for long.
The one feather that these digital assets can borrow from the traditional financial world is lending and borrowing, which is the backbone of the majority of the financial ecosystem and banks. This interest-based income, lending and borrowing have already gripped the digital asset world which is evident from a report from Credmark.
The Credmark report suggests that the crypto lending market has already peaked $8 billion in loan amount by the end of the fourth quarter of 2020.
At present, the market size has grown to $10 billion and expected to grow exponentially as the popularity rises overtime. Not only that the global peer-to-peer lending marketplace has also registered annual transaction volumes in upwards of $85 billion.
Lending and Credit Gaining Popularity in Crypto Verse
Genesis Capital, one of the leaders in the crypto credit market, registered its best quarterly performance in the first quarter of 2020, registering $2 billion in the new loan organizations. The firm doubled on its previous quarterly performance and also registered a 20% spike in active loans from the previous quarter.
Celsius Network, the retail-focused crypto lending platform, registered similar growth and currently boasts of 100,000 retail clients and 260 institutional clients spread across 160 countries. The firm has registered $8.2 billion in coin loans to institutional clients since its inception in 2018.
Crypto lending is mostly based on the underlying assets, which makes an easier process as debt is collateralized with the crypto asset. Apart from these asset-backed crypto lending, another form of a lending ecosystem has risen in popularity over the last year in the crypto space i.e decentralized finance (defi).
Defi is an Ethereum based ecosystem which offers decentralized credit system to users based on the collateralized asset.
Users can lock their Ether, Wrapped Bitcoin and other ERC-20 based tokens in smart contracts and withdraw a loan in non-asset backed stablecoin like Dai and USDC. The defi ecosystem has gained massive popularity in the past year, and the value of assets locked as collateral has already crossed the $1 billion mark.
Thus, looking at the popularity, demand and success of lending and borrowing ecosystems in the decentralized space, it could pave the path for mass adoption of crypto in the long-term.