Blockchain-Based Lending Surges By 128%, Hits $582M: Here’s Why
Rising Demand For Blockchain Credit
Since the start of 2023, blockchain-based lending has skyrocketed, with $582 million in active tokenized private credit. This represents a 128% increase over the previous year.
While it has yet to reach its peak of $1.5 billion in June 2022, this resurgence suggests that borrowers are exploring blockchain-based options instead of traditional lenders as interest rates rise. Data from RWA.xyz, a real-world asset loan tracker, highlight this upward trend.
It’s worth noting that the current average interest rate for these blockchain-based credit protocols is 9.64%. In comparison, the interest rates on small business bank loans typically range between 5.75% and 11.91%, per a recent NerdWallet data.
The significant increase in blockchain-based lending suggests that borrowers are becoming more interested in alternative financial avenues. While it has yet to exceed its previous high, the momentum keeps rising, making the attraction of these blockchain-based options obvious.
Meanwhile, borrowers are more inclined to explore newer, potentially more competitive alternatives offered by blockchain lending platforms.
Rising Significance Of Blockchain-Based Lending
According to RWA.xyz, the number of blockchain-based loans keeps rising by the day, with the platform tracking $4.5 billion spread across 1,804 transactions, averaging roughly $2.5 million per loan. Fasanara Capital, a UK-based asset management firm, made headlines after obtaining a $38.3 million loan from Clearpool, which offered an enticing sub-7% base annual percentage yield (APY).
Divibank, a Brazil-headquartered platform, is another notable player in this evolving landscape. However, Centrifuge, built on Ethereum, dominates the market, accounting for more than 43% of active loans, increasing from $84 million to $255 million in 2023—about a 203% increase. In addition, Goldfinch and Maple followed suit with active loans totaling $143 million and $103 million, respectively.
Furthermore, Tether (USDT), USD Coin (USDC), and Dai (DAI) are critical in facilitating these loans since their values are pegged to the US dollar. These coins help ensure stability regardless of crypto market conditions.
The large sums borrowed via blockchain-based platforms demonstrate the growing trust in this alternative lending model. Notably, established financial institutions and emerging players are utilizing these platforms, attracted by competitive interest rates and the efficiency of blockchain technology. As these platforms grow and evolve, their impact on traditional lending practices will become more pronounced.
Major Borrowers
The consumer and automotive industries have shown the most interest in blockchain-based lending, with loans totaling $197.7 million and $186.8 million, respectively. However, the real estate, fintech, carbon credit, and crypto trading sectors are closely behind.
Despite this recent surge, the $506 million blockchain loan market accounts for only a tiny fraction (about 0.3%) of the $1.6 trillion controlled by the traditional credit market. The disparity highlights the emerging potential of blockchain-based lending compared to established traditional lending practices.
While blockchain lending offers appealing opportunities, it is critical to recognize the associated risks. Before committing to loans, potential borrowers must carefully consider factors such as insolvency risks, collateralization terms, the dependability of smart contracts, and other security vulnerabilities inherent in these platforms.
Furthermore, navigating this new lending landscape necessitates a balanced approach in which borrowers weigh the benefits of competitive interest rates and the efficiency of blockchain technology. These precautions protect entities against the risks and uncertainties associated with this innovative financial landscape.
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