Resurgence Of Crypto Loans In 2023: 55% Growth. A Sign Of Revival?

Crypto loans revival in 2023

✍️ 18 December, 2023 - 13:42 👤 Editor: Jakub Motyka

The world of cryptocurrency has witnessed a remarkable turnaround this year, especially in the realm of crypto-based loans. After a challenging 2022, the sector has bounced back with a significant surge in loan activities.

According to a recent report, the total value of active private loans on blockchain platforms has impressively climbed to about $581 million, marking an over 55% growth since the start of 2023​.

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This growth, however, is still overshadowed by the peak figures of nearly $1.5 billion seen last June. Apart from this, Besides, we are only speaking about a fraction of the traditional private credit market, which is covered by a $1.6 trillion valuation.

The Recovery Of Cryptocurrency Loans Is A Reality In 2023

Traditional private credit has faced criticism for its lack of transparency, but it has grown since 2015, providing loans across various sectors. In contrast, blockchain-based private credit uses protocols like Centrifuge, Maple Finance, and Goldfinch, typically on the Ethereum blockchain, offering loans through smart contracts and sometimes collateralizing them with real-world assets.

The majority of these loans are in the consumer, auto, and fintech sectors, followed by real estate, carbon projects, and crypto trading​​.

Despite the industry's recovery, with total decentralized lending reaching about $22 billion year-to-date, the digital asset industry still faces challenges. These include limited access to banking services due to concerns over crypto's involvement in illicit activities, the complexity of shifting between tokens and fiat currency, and the lack of a comprehensive credit rating system in the crypto lending market, which hinders a complete understanding of risks​​.

A Competitive Edge Over Traditional Lending: Positive Factors About Crypto Loans

The resurgence of crypto loans isn't just about numbers; it’s also about the advantages blockchain technology offers over traditional lending methods. Blockchain protocols are currently charging less than 10% interest on loans, a stark contrast to the double-digit rates typical of traditional credit providers​​.

The secret sauce behind this competitive edge lies in the inherent features of blockchain technology. Crypto ledgers offer heightened transparency in transactions and repayments, thanks to their public accessibility. Additionally, the use of smart contracts in blockchain platforms enables autonomous monitoring and management of loans, including stress-triggered actions like recalling loans or collateral.

This automation and transparency significantly reduce the risks associated with lending, leading to lower borrowing rates compared to traditional credit sources, which are often slower and have a longer liquidation process​​.

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