Borrowing has existed in some form for thousands of years-dating back to ancient civilizations, where farmers would borrow seeds and use crops as repayment.
The advent of legal tender changed the way the economy operated at that time. In fact, you might argue that as cryptocurrencies become a larger and more influential part of the world’s financial ecosystem, we are now seeing such a dramatic change.
If done well, crypto loans may create a level playing field—providing consumers with a flexibility they may not be used to. For several years, the interest rates offered by banks have been tepid, to say the least. In some countries, even the most generous savings account can only pay less than 1% in interest—even if the funds are locked for several years.
Given the recent sharp rise in inflation, partly due to the printing of money in response to the coronavirus pandemic, registering one of these accounts means that savers’ money will actually reduce spending power.
Compared with the status quo, crypto lending offers three powerful advantages. First, it is possible to find more competitive deals to ensure actual capital growth-sometimes weekly or monthly interest payments. Second, many platforms provide much-needed flexibility for lenders, which means they are not forced to lock up funds for a long time and can withdraw funds at will. Third, when the market performance is quite unstable, it can be used as a powerful incentive.
That was before we even discussed the fact that from a lender’s point of view, encryption as collateral may be more practical than real estate—an asset that is fairly low-liquid and can be time-consuming to sell.
It’s not just the lender that benefits
Of course, all of this is a good deal for lenders-people with spare money. But this is also good for borrowers. In the current financial ecosystem, a flaw in an otherwise impeccable credit record may deny responsible consumers the best interest rate, and crypto platforms can provide a valuable lifeline.
When looking for people who are willing to provide credit to them, banks usually have an opaque list of requirements. Moreover, in a world where more and more consumers are self-employed, otherwise reputable applicants may end up being excluded from the market because they don’t have a traditional nine-to-five job—whether they are or not. There really is more money in income in their current arrangements.
The crypto world can help foster inclusiveness, but there are also challenges. Many lenders in this area are offshore companies and unregulated-which may make them less attractive to everyday consumers. This also limits the number of partnerships that crypto platforms can establish with fintech companies.
A new method?
A platform that aims to change the world of lending is Work x, An encryption-as-a-service fintech designed to bridge the world of encryption and fiat currencies. The company allows brands to provide interest-free secured loans to their customers and communities, while providing high savings rates for those holding digital assets. All of this is achieved through APIs, which can be quickly integrated into any DeFi, exchange or wallet application or website.
This form of interest-free and low-cost secured loans is provided to those who hold BXX (utility tokens related to Baanx). The loan can then be transferred to an encrypted wallet or physical card and virtual card. For those who use Bitcoin and Ethereum as collateral, up to 50% loan-to-value ratio, one-click approval.
Baanx is on the FCA’s temporarily registered list of encrypted asset companies and also uses a loan license. The project’s white paper states that it will “collateralize any digital asset, including cryptocurrencies, stocks, bonds, and emerging NFT asset classes”.
The amount of funds that can be provided through loans will depend on the amount of collateralized tokens in its system.
The data provided by Baanx shows that the platform has now sold more than 600,000 white-label cards and accounts worldwide-almost exclusively through branded corporate customers, including Tezos Crypto Life applications, DeFi protocols, exchanges and wallet providers. It also plans to launch with a major wallet provider in the United States in the fourth quarter of 2021.
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