Holders of digital assets who intend to keep them for the long term will have the ability to lend them out to people who want to borrow them in the short term, earning interest in the process. The loans will be fully collateralized by cryptoassets held by the borrower, and administered using smart contracts stored on the blockchain.
The practice of borrowing and lending securities, often used to enable short selling strategies, cover failed trade settlements, or hedge against an existing position, is commonplace in the world of currency, stock or bond trading, but has never been attempted before using crypto assets.
Co-founders Linda Wang and Steve Swain said in a statement that the cryptocurrency market has matured sufficiently for the introduction of a next-generation platform such as Lendingblock, a peer-to-peer crypto asset lending marketplace that allows users to make, or take, fully collateralized crypto-to-crypto loans.
Assets can be collateralized across different blockchains and accept any digital assets on existing protocols. Personalised smart contracts are generated for every loan, using Ethereum, to ensure the terms of the loan are applied, and the users’ rights are fully protected. Lenders can earn a return on the assets that they lend out, without sacrificing the benefits of ownership, whilst borrowers can specify the digital asset they need and the collateral and interest rate they are able to offer.
Interest payments are tracked and distributed via the blockchain, and at the end of the loan period the repayment is distributed to lenders and collateral returned to the borrower.
The value of all conventional securities in circulation is $15 trillion. The value of crypto assets in circulation is estimated to be $50 billion, but the rapid growth in crypto assets has outpaced the supporting financial services industry. Soon crypto asset holders will be demanding the same, or better levels of flexibility as those that they enjoy on the main markets. With over $500bn worth of crypto assets already on the market, a combination of continued growth in asset values and adoption of borrowing and lending of 3% could lead to a $25 billion market very quickly.