Blockchain-Based Lending Gains Momentum with $582 Million in Active Tokenized Private Credit
The blockchain-based lending market is experiencing a resurgence, with the value of active tokenized private credit reaching $582 million. This marks a significant 128% increase compared to the previous year. Although it is still below its peak of $1.5 billion in June 2022, this growth suggests that borrowers are increasingly turning to blockchain-based alternatives as interest rates rise.
Higher Interest Rates Drive Borrowers to Blockchain-Based Credit Protocols
According to data from real-world asset loan tracker RWA.xyz, the current average interest rate for blockchain-based credit protocols is 9.64%. In comparison, traditional financiers offer small business bank loans with interest rates ranging from 5.75% to 11.91%. This difference in rates may be driving borrowers towards blockchain-based options.
Significant Loan Amounts and Notable Borrowers
The loans being taken out in the blockchain lending market are substantial, with RWA.xyz tracking $4.5 billion across 1,804 deals. This translates to an average loan size of around $2.5 million. Notable borrowers include United Kingdom-based asset management firm Fasanara Capital, which secured a $38.3 million loan from Clearpool at a sub-7% base APY. Brazilian bank Divibank is also participating in the market.
Ethereum-Based Centrifuge Dominates the Market
Ethereum-based Centrifuge holds over 43% of the active loans market, with $255 million in loans — a remarkable increase of 203% from the start of 2023 when it was at $84 million. Goldfinch and Maple are the second and third largest blockchain credit protocols, with $143 million and $103 million in active loans, respectively.
Stablecoins Facilitate Blockchain-Based Loans
The main cryptocurrencies used to facilitate these loans are Tether (USDT), USD Coin (USDC), and Dai (DAI), all pegged to the United States dollar. These stablecoins provide stability and liquidity to the lending market.
Diverse Borrower Sectors and Market Size
The largest loan-seekers in the blockchain-based lending market come from the consumer ($197.7 million) and automotive ($186.8 million) sectors. Other sectors involved include fintech, real estate, carbon credit, and cryptocurrency trading. However, despite its recent growth, the active loan market of $506 million is only around 0.3% of the size of the traditional private credit market, which is valued at $1.6 trillion.
Considerations for Borrowers
While blockchain-based lending offers potential benefits, borrowers should be aware of the risks involved. Factors such as insolvency, collateralization, smart contracts, and security risks should be carefully considered before borrowing from blockchain-based protocols.
Hot Take: Blockchain-Based Lending Sees Significant Growth Amid Rising Interest Rates
The blockchain-based lending market has seen a remarkable resurgence as borrowers seek alternatives to traditional financiers amidst increasing interest rates. With a value of $582 million in active tokenized private credit, this sector has experienced a staggering 128% growth compared to the previous year. Notable borrowers and substantial loan amounts indicate the growing popularity of blockchain-based lending. Ethereum-based Centrifuge dominates the market, followed by Goldfinch and Maple. Stablecoins like Tether, USD Coin, and Dai play a crucial role in facilitating these loans. Despite its recent growth, the blockchain lending market is still relatively small compared to traditional private credit. Borrowers should carefully assess the risks before engaging in blockchain-based lending.
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