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On-chain Crypto Lending: The Path to the Mainstream By Ricky Li, Co-Founder & Head of North America, Altonomy

On-chain Crypto Lending: The Path To The Mainstream.

One of the hottest topics in cryptocurrency right now is the potential ability for distributed ledger technology to transform the borrow and lending activities in traditional banking. This helps banks solve two major issues: application of legal actions and liquidity.

But “on-chain” technology could solve another essential, but less recognized, problem: credit.  In theory all the information is right in front of you on the blockchain, but the utopian world and the real world are two different things.

There remain some significant pain points that are holding back “on-chain” borrowing and lending from really taking off and entering the mainstream. I see the following three as the most critical:

  • Maturity of Technology — For lenders and borrowers, security and credit are the top considerations.  But since blockchain technology has not yet garnered complete trust with the average investor or traditional banks, people are often left questioning “How safe are these smart contracts?” and “Who audits them to ensure they are accurate and remain unchanged?”  
  • Lending and Borrowing Operations — As a process, lending and borrowing is paperwork-intensive. A lot of credit checks are required, and this is before any of the KYC / AML work is conducted to ensure money is coming through legal channels. Right now, we only have a partial solution comprised of on-chain lending coupled with third-party KYC processes that slow down and complicate the process. We need a full and trusted on-chain solution.  
  • Trading and Settlement — The question many are facing in the crypto market is, “How fast can you settle trades?”  Currently, most systems can manage a margin in 25 minutes, which is a lot of time in the crypto world where prices can move dramatically in a short period of time. It’s this lag time that causes concern, especially because collateral levels can be so high.  Only when the market is liquid enough can this issue be resolved.

So what’s necessary to get past these issues?

With these being three major impediments to mass adoption of on-chain lending, the question then becomes how to get past them.  When it comes to the maturity of technology and the safety of contracts, lenders need to be certain information will be safeguarded and clear from any hacking risks that could compromise them and the finances of their enterprise.  For the operational side of lending and borrowing including the KYC / AML process, technology solutions are certainly helping to streamline matters. For example, forms that pre-populate with publicly-available information would save significant time and money for everyone involved.  While these are all certainly very important, of the three hurdles to on-chain lending adoption, I look to trading and settlement as the greatest challenge to address.

To create a truly viable on-chain lending environment, there needs to be a trusted liquidity provider to help the lender manage margins and decrease exposure to market risk.  With better liquidity (an issue that’s certainly nothing new to crypto trading in general), the margin management process will be much more intensive, helping to increase margins and incentivize people and institutions to borrow and lend. And this all helps investors’ confidence in the solution.

The future for on-chain lending…

In time, on-chain lending will absolutely go mainstream. This is likely to happen in the next couple years and as we start to see the value of this adoption, there will be a significant inflection point. Enhanced products and technologies as well as operational efficiencies, aided by an improved regulatory landscape, should likely mean a bright future is ahead for on-chain lending.

There will no doubt be bumps in the road. But the same could be said of any major technology advancement.  Back in the initial “dot-com boom,” major players like eBay or Amazon might have outages driven by demand. Yet those days were not preliminary indications of failure, but rather high demand for a valuable  service. In these situations, the company or the industry as a whole learns, makes improvements and creates a better overall experience. The same will likely be true in on-chain lending. It won’t be necessarily a linear progression, but the overall trendline points in a positive direction. And this progress will benefit everyone involved.

About Ricky Li

Ricky Li is the Co-Founder of Altonomy, a cryptocurrency trading, advisory and asset management firm. Now based in New York, he is a veteran trader in the emerging cryptocurrency market and traditional commodities markets. Li has experience in commodities quantitative trading, and research and advisory in investment banks, energy firms and management consulting firms, including CME Group, where he managed the energy derivative product and published various articles and insights about market fundamentals. Prior to Altonomy, Li held a senior trading position at a top Asian crypto hedge fund. Li is a current Advisory Board Member for WePower and holds a CFA Charter and Ph.D in Computer Science from Rensselaer Polytechnic Institute and a Bachelor’s degree in Computer Software Engineering from Sichuan University.

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Instant Crypto Credit Line Provider Says It Processed $300 Million in Seven Months

A crypto lender that offers consumers an instant credit line says it has processed more than $300 million in seven months, making a net profit of $3 million.

A crypto lender offering instant loans in more than 45 fiat currencies says it has amassed more than 170,000 users — with $300 million processed over a seven-month period.

Nexo enables consumers to deposit their crypto assets into a secure wallet and instantly access a flexible credit line via automated approval and without the need for credit checks. They can then spend this credit by card or withdraw it to a bank account with a same-day or next-day transfer without incurring hidden fees or foreign exchange commissions.

The platform says its interest rates, which are deducted directly from a user’s available credit limit, start at an 8 percent annual percentage rate (APR) — with the company arguing that this is “much lower than the average credit card rate.” Repayments on loans are flexible and have no minimum requirements, and they can be completed at any time without subjecting additional costs.

Nexo has been featured on CV VC’s list of the 50 most important Swiss blockchain companies, and it says it is the only crypto lender that makes loans available to more than 200 jurisdictions around the world.

Substantial growth

According to Nexo, the “ravaging bear market” in the crypto world has not affected its performance, with the company earning a net profit of $3 million within the first seven months of its operation. As reported by Cointelegraph at the start of the year, lenders have enjoyed buoyant demand because borrowers have been reluctant to sell their assets when prices are depressed.

Back in December, the company paid a dividend of $912,071 to holders of its native NEXO token, representing 30 percent of the profits made. Nexo claims that the 4.80 percent annualized yield is higher than all of the dividend-bearing stocks in Warren Buffett’s portfolio — including big names such as Apple, JPMorgan Chase and Goldman Sachs. This comes despite Buffett’s ongoing skepticism about cryptocurrencies in general, with the billionaire investor recently describing Bitcoin as a “delusion” that has no unique value at all.

To underline why these financial results are important — with its business turning a profit, let alone being operational – Nexo cites research from Ernst & Young, which suggests that only 13 percent of the companies that conducted initial coin offerings in 2017 actually have a working product, with 71 percent have no offering on the market at all.  The firm adds: “Typically, within one year of a traditional venture-backed software startup, you would expect to see a significantly higher percentage of the companies with a functional early stage product.”

Insured and secure

According to Nexo, all of the crypto assets that it holds for users are insured against third-party hacks, copying, theft of private keys, insider theft or dishonest acts of employees. This custody insurance coverage compensates clients for losses of up to $100 million in the event of a security breach. Nexo has taken out an enterprise-solution policy offered by BitGo (backed by Goldman Sachs) and provided by Lloyd’s.

The company also says that it is a founding member of the Collateral Protection Insurance consortium, which ensures that borrowers are fully compensated if the assets they provide are destroyed, stolen or rendered unavailable.

Nexo has been backed by Michael Arrington, the founder of TechCrunch, with Arrington XRP Capital investing “substantial amounts” into the project. The company says that its website has now received more than 1 billion impressions — attracting 35,000 members in its Telegram community, along with more than 31,000 followers on Twitter. The crypto lender has also been featured by renowned business publications and news services, including Forbes, Bloomberg and Reuters.

Learn more about Nexo

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

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Tel-Aviv Stock Exchange Turns to Blockchain for New Lending Platform

The Tel Aviv Stock Exchange (TASE) is teaming up with Accenture and The Floor, an Israeli fintech hub, to build a blockchain securities lending (BSL) platform aimed to allow direct lending of all financial instruments.

The BSL will act as a “one-stop-shop for all securities lending activities, permitting access to larger securities volumes within shorter time-frames, even operating in shorter-term positions,” a press release states.

With the use of distributed ledger technology from blockchain consortium Hyperledger, the platform is designed to reduce costs, increase security and provide more flexible lending activities. More specifically, the project is built on top of Hyperledger’s Sawtooth platform, with hardware-based Software Guard Extensions security provided by Intel.

Blockchain, the firms say, allows better data privacy between parties involved in transactions, as well as peer-to-peer transactions, smart contract functionality and the security of an immutable ledger.

Ittai Ben-Zeev, CEO of TASE, said:

“Blockchain technology will present a new level of safety for securities lending and will support growth for transactions based on this new platform. Without a doubt, TASE is now, more than ever before, a global financial innovation leader.”

For its role in the project, Accenture will work on the platform’s smart contracts development, as well as offering other services to support the BSL platform, including project management, systems integration, cybersecurity consulting, and others.

“We are very pleased to provide our expertise and capabilities in blockchain, capital markets and fintech ecosystems in order to facilitate this exceptional collaboration,” said Jacob Benadiba, managing director of Israel Accenture. “This project will help TASE create an innovative end-to-end solution that addresses their business, security and technological needs under an extremely powerful new paradigm.”

TASE image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Former Goldman Sachs Executive Director Joins Crypto Startup as CEO

Priyanka Lilaramani, former Goldman Sachs Executive Director, has recently joined HOLD, a Maltese crypto startup, as a new CEO, HOLD announced on its Medium blog on May 2. Priyanka Lilaramani was a Director at Goldman Sachs for more than 10 years. In 2017, she was  listed in the UK’s Innovate Finance FinTech Powerlist.

“The power and potential of blockchain as a technology, and cryptocurrencies as an application is undeniable. It speaks to the power of people at scale and re-establishes how great causes are achieved.” Lilaramani commented following her appointment.

HOLD, which is based in Malta and operates a technology center in Porto, Portugal, is building a platform that creates a financial marketplace where crypto investors can get instant cash against cryptocurrency collateral. It will credit the cash advance on Mastercard or Visa credit cards, accepted at more than 45 mln retailers and 3 mln ATMs worldwide.

According to the company, the cash advances will not require bank-like credit checks. Instead, they will simply hold cryptocurrencies as collateral, advancing up to 65 percent of the value of their crypto holdings. The advances are capped at $15,000 or 10,000 euros/pound sterling. With the help of this instant cash, investors can manage their monthly spending and plan the sale of their digital currencies when prices are more favorable.

Platform fees and rate spreads

Borrowers are required to keep HOLD tokens in a dedicated wallet for as long as they are requesting  cash advances, with a minimum of 6 months. The terms, typically, are for up to three months. Borrowers are charged an pro-rated interest rate of 8 percent p.a., plus a platform fee of 3 percent that goes to HOLD. The loans can be renewed subject to platform fees and availability. The Mastercard and Visa cards offer 1 percent cashback in the form of HOLD tokens.

Cash advances require a Know Your Customer verification process and can easily done via a smartphone app. The company says lenders on the platform earn between 4.5 percent and 7.5 percent per annum by providing fiat currencies in the system, with the spread going to HOLD.

Technology platform to match lenders and borrowers

Typically, lenders will bring fiat currency into the system, and not sell crypto holdings. Consequently, the lending levels on the platform will not impact the price of cryptocurrencies, preserving the integrity of an independent market-driven pricing system governing all cryptocurrencies.

A so-called Trading Oracle, together with a proprietary algorithm, drives the HOLD platform. It matches borrowers and lenders, while also evaluating the value of holdings. The algorithm also monitors market conditions to identify cash advances at risk of being liquidated, warning both borrowers and lenders. When triggered, the system will automatically liquidate holdings and close off positions.

Pre-sale of tokens set for May 4

According to the company’s Medium blog, HOLD has raised more than $6.1 mln from the private sale of its tokens, based on the ERC20, and has scheduled a pre-sale from May 4 to May 31.

For its initial coin offering, HOLD has set a hard cap of $11.3 mln, with the soft cap of $3.5 mln already achieved from the private sale. HOLD plans to cap supply of its tokens at 1.3 bln, with one HOLD token worth 0.00004 ETH.

HOLD will also have a token buyback program to increase the overall liquidity, and a quarterly token burn to decrease supply. The presale will start tomorrow and the company offers a 20 percent bonus limited to the first 24 hours of its pre-sale.

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

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Latest Pronouncements From OECD, EU & G20 Allow Fintech To Flourish: Expert Take

In our Expert Takes, opinion leaders from inside and outside the crypto industry express their views, share their experience and give professional advice. Expert Takes cover everything from Blockchain technology and ICO funding to taxation, regulation, and cryptocurrency adoption by different sectors of the economy.

If you would like to contribute an Expert Take, please email your ideas and CV to

Last week marked the 10-year anniversary of Bear Stearns’ infamous collapse at the dawn of the global financial crisis caused by highly leveraged mortgage-back-security lending and related transactions – an event which allowed for today’s crypto economy to emerge. It was also the week the topic of cryptocurrencies, Blockchain technology and digital taxation received considerable coordinated attention from global Intergovernmental organizations, regulators, legislators and central banks who discussed their impact on financial stability and potential uses in tax evasion and illegal activities during the G20 meeting in Buenos Aires, Argentina.

During the meeting, world’s economic leaders agreed that cryptocurrencies and Blockchain technology, given its borderless and intangible nature, is fundamentally reshaping the global cross-border financial connectedness, and its increasing ability to automate cognitive tasks. The G20 settled on characterizing cryptocurrencies as property, thereby setting the stage for cryptocurrencies to be adapted as a new digital-asset-class.   They committed to implementing Financial Action Task Force (FATF)’s anti-money laundering (AML) and terrorist financing standards as they apply to crypto-assets to mitigate concerns over security, consumer protection, and financial crime.  As well as to abide by Organization for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) framework, study international nexus and profit allocation concepts for taxing the digital economy (BEPS Action 1) and come up with a new approach by 2020, as agreed upon by 113 countries. They also established a July 2018 deadline for proposals for cryptocurrency regulations.

Digital tax measures proposed by the European Union

With a long-term solution to taxing digital firms postponed to 2020, the EU Commission took the lead on proposing two new digital tax rules that will be submitted to the Council for adoption and to the European Parliament for consultation.

The first one suggests a common reform of the EU’s corporate tax rules to enable member states to tax digital profits that are generated in their territory, even if a company does not have a physical presence there. A digital platform will be deemed to have a taxable nexus, ‘digital presence’ or a virtual permanent establishment in a member state if it fulfils one of the following criteria. It exceeds a threshold of seven mln euro in annual revenues in a member state or has more than 100,000 users there in a taxable year, it has over 3,000 business contracts for digital services that are created between the company and business users in a taxable year. This proposal resembles a concept of nexus by Internet “cookies,” which differs from the physical presence nexus test as defined under OECD Model Tax Conventions.

Commission’s second proposal imposes a temporary interim tax of three percent to companies with total annual worldwide revenues of 750 mln euro and EU revenues of 50 mln euro on certain digital revenues created from selling online advertising space, digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them, selling data generated from user-provided information. This interim tax will be repealed once a long-term solution is jointly agreed upon by the OECD.

Crypto-asset lending firms emerge

With the fintech friendly announcements from OECD, EU, G20 and increased interest in crypto-assets by institutional investors, a new type of Fintech business- crypto-asset lending has been surfacing all over the world.

It’s a similar business to securities lending, which utilizes long-term stock holdings of institutional lenders, such as mutual funds, pension funds, insurance companies, exchange-traded funds and sovereign wealth funds, that would otherwise sit idle by temporarily lending them out on a collateralized basis and investing the cash in safe, short-term investments for a modest return.

Borrowers, typically hedge funds, use the securities to cover short positions, to hedge positions or to take advantage of arbitrage opportunities. They post securities as collateral that is usually 102-105 percent of the market value of the securities, with a promise to both return the shares, the same type and amount of securities, on demand and cover any dividends paid out in the meantime. If the shares are liquid and easy to borrow, the lender gets a modest fee for its cooperation and keeps an agreed-upon percentage of the interest earned on the collateral.

In the 1990s and 2000s, the demand for securities lending grew with the expansion of global securities markets and the exponential increase in short-selling by hedge funds. In 2007, there was an estimated $5.5 tln worth of securities on loan through various lending programs. But during the financial meltdown when securities prices fell precipitously, widespread abuses by securities lending agents came to light that led to disastrous losses for institutional securities lenders.

Market demand from institutional crypto-asset owners such as hedge funds and miners are fueling different types of crypto-asset lending businesses to emerge. Including U.S. mutual fund giant Fidelity Investments, with $6.3 tln under administration, which has entered the crypto-mining business because, a company official said, ‘‘we can see that the evolution of Bitcoin and Blockchain technology is setting the investment industry up for disruption.”

Some crypto-asset lenders are offering fiat currency loans to accredited investors who purchase a token to become members of their firms. These loans do not require a credit check or much paperwork but are expensive. Borrowers put up as much as 200 percent in crypto-asset collateral, for fiat currency loans issued at interest rates ranging from 10 percent to 25 percent.  

Other companies are peer-to-peer lenders where the platform matches lenders to borrowers in return for a fee.  

Crypto-asset-lending firms, backed by Blockchain technology, designed to reduce fraud, are exploring ways to offer the loans that make automatic interest payments via smart contracts.   These companies are nevertheless subject to similar risks associated with securities-lending and more.

Crypto-asset valuation

A crypto-assets’ value, which will serve as the collateral to a loan, is determined based on the demand for the cryptocurrency or token which may be highly volatile and illiquid as well as the financial performance of the token issuing company. Currently, there isn’t a standardized way of determining a crypto-assets value, because different exchanges are trading the same crypto-assets at different prices. This makes margin call monitoring especially difficult to implement for crypto-asset lending firms.

Blockchain technology

The crypto-asset lending firms are established on Ethereum (ETH) or Bitcoin (BTC) platforms which are in its early stages of development, and their application is of experimental nature. These platforms are vulnerable to computer viruses, physical or electronic break-ins, attacks or other disruptions of a similar nature (Hacks) as well as hard forks.

Regulatory & Tax

Global regulators, legislators and central bankers have committed to devising effective AML/KYC regulations for crypto-assets by July 2018.  It is not known whether they will come up with a coordinated approach to regulations for cross-border crypto-asset lending transactions as it pertains to registering securities interests in crypto-assets and their treatment under bankruptcy laws by the upcoming deadline.

Furthermore, it should be noted that the Internal Revenue Service (IRS) guidance on crypto taxation does not address crypto-asset loans or hard forks. In the event IRS treats crypto-asset lending transactions or hard forks as tax realization events, the resulting US tax obligations along with the applicable penalties for failing to file applicable tax returns could make the crypto-asset loans all the more expensive. Borrowers, including offshore hedge funds, are urged to take in to consideration the uncertain US tax treatment of their crypto-asset financing transactions and if need be, take advantage of the IRS Offshore Voluntary Disclosure Program before it ends by September 2018. On March 23 the IRS reminded taxpayers to report their virtual currency transactions or face applicable civil, as well as the criminal penalties for non-compliance.  

The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.

Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

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BitConnect Again? DavorCoin Price Dives After Lending Site Shutdown

A cryptocurrency investment scheme that last month drew the ire of state regulators in Texas announced last week that it was closing its lending platform.

DavorCoin, as previously reported, was likened to BitConnect by the Texas State Securities Board (TSSB) given that both involved the use of a lending site and had promised to pay steady interest income to those who invested. On Feb. 2, the board issued a cease-and-desist to Davorcoin, alleging at the time that those behind the scheme had intentionally hidden information from would-be stakeholders.

“The emergency order found that DavorCoin is telling investors they can earn lucrative profits by investing in a lending program based on a new cryptocurrency known as davorcoin. Investors allegedly purchase davorcoin and then lend it to DavorCoin,” TSSB wrote at the time.

Less than a week later, those behind DavorCoin announced that they were closing the associated lending platform because of a plunge in the value of the scheme’s DAV token.

According to data from CoinMarketCap, the price nearly hit $180 just over a month ago, but by the day of the announcement, the value of DAV was around $3. Press-time data indicates that DAV’s value has plunged even further, coming in at roughly $0.03 at press time.

The team wrote in the Feb. 7 blog post:

“There is no doubt for us that the DAV value has been negatively affected by our lending program because the crypto-environment has dramatically changed recently. We did everything possible to protect our platform and our amazing community. However, DAV price still went from $180 to $0.5 in 20 days. As a result, we have decided to change our strategy and to end our lending program that has become the only reason why DavorCoin is decreasing in value.”

The blog goes on to state that those behind DavorCoin will seek to resuscitate its price through “transforming DAV into a strong cryptocurrency.” Yet since that date, there have been no official posts on its Medium and Twitter accounts.

Image via Shutterstock

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Global Lending System Can Be Improved With Blockchain

Not everyone has the means to open a personal or business bank account but practically, everyone needs to make transactions that involve money. In fact, World Bank Global Findex indicates that two billion individuals have no access to bank accounts.

In the US alone, 7% of households are unbanked according to the latest data by the FDIC.

While these figures dropped significantly in 2014, studies show that having a bank account has a direct correlation with the one’s standard of living. If somebody has a bank account, he can have access to better loans, savings, business startups, and property acquisition options.

How can Blockchain help?

People who have bank accounts can easily ride the flow of the economy to fill in their basic needs, but what about individuals that do not have access to one? Blockchain may be able to help.

Here are three key ways Blockchain may improve access to the unbanked.

1. Easier access to mainstream financial system

Banks require an enormous amount of documentation to process loans for their customers. While that process may be considered as a long time-standard, it’s still discouraging.

With Blockchain, there is almost no chance of fraud. This makes it easier for customers to become part of the system while maintaining a high-security level – a win situation for both parties.

2. Easier and more affordable remittances

Since we’ve already established that not everyone in the world has access to a bank account, especially for countries with lower standards of living, mobile phones can be powerful tools.

Blockchain technology and cryptocurrencies create a medium for easier money transfers via mobile phones. Having a bank account is no longer needed to send or receive payments from anywhere in the world.

3. Access to more reliable financial products and better protection

Blockchain just plain works, and provides security and fraud prevention.

The transparent and immutable nature of Blockchain technology comes into play here. Remember that the information in the Blockchain is stored in a huge publicly distributed ledger wherein the details are visible to everyone in the system. Transparency is baked-in.

In terms of reliability, the old method requires too much human intervention in order to function properly. This incurs a great deal of cost. In Blockchain technology, everything operates almost automatically while maintaining reliability by enforcing the set algorithmic standards.

With the lowered cost of operation and maintenance, insurance companies can provide customers better services and policies.

Opportunity for better borrower-lender connection

There is also an opportunity in terms of connecting the borrowers to the right lenders. Although there are many lending institutions scattered around the world, each of them still has its own policies and schemes thereby creating different experiences for every person. There have been various projects and efforts on this front, including one by Ripio Credit Network (RCN) which utilizes Blockchain technology and smart contracts to link borrowers to the right lenders. This will allow both sides to set better conditions for the loan.

The use of Blockchain technology in this example can make the transactions quicker and more efficient. The borrowers’ identities are stored in the Blockchain, allowing for a quicker credit assessment and loan processing. The same goes for the lender’s records wherein the information is sure to be legitimate and transparent to everyone in the system.

In short, Blockchain gives better assurance to the lenders by making sure that every contract they are signing is genuine to avoid any fraudulent activity.

The future

Blockchain applications will ultimately eradicate repetitive processes and middlemen without sacrificing the efficiency and transparency that most of us have long been looking for in our governments, public services, and other transactions.