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The internet has disrupted many industries but one industry that it has been unable to transform is banking. It is now believed that blockchain technology and cryptocurrency will be able to do what the internet has failed to do and change the shape of traditional finance.
“The world needs banking but it doesn’t need banks.”
There are currently plenty of blockchain-based platforms that offer the same banking services, such as lending, borrowing and investing opportunities, without actually being banks. Here are 7 of the best blockchain-based banking alternatives:
Crypto Lending Services
These platforms allow users to leverage their digital assets in order to earn interest or secure loans.
SALT’s schema is simple — to become a member users purchase ERC20 SALT tokens, and then put up crypto assets as collateral to borrow money (in cash) from the network of lenders.
There are no liquidity guarantees in the platform however, so if the borrowing fund gets depleted, the interested borrower will have to wait for more lenders to join or for funds to be paid back. Interest rates on loans on the SALT platform vary between 10–15 percent depending on the terms of the individual loans.
Since going live, SALT has already processed over $7M in loans and claims to have more than $0.5B in loan requests.
Coincheck is the leading Bitcoin and cryptocurrency exchange in Asia which also provides a lending service. With Coincheck, users can lend their digital assets to the exchange (for a certain period) after agreeing upon a loan contract agreement.
Once the agreement expires, lenders receive their crypto assets back plus an annual interest on top of it (currently, lenders can earn a maximum of 5%). The platform only supports Bitcoin but there are plans to support more in the future.
At ETHLend, borrowers and lenders have the opportunity to connect and negotiate all the terms of their smart contract — from interest rates to the loan duration. The platform, as indicated from its name, is based on the Ethereum blockchain and ERC20 tokens are used.
Various discounts are available to its users (based on various circumstances) and it can sometimes be difficult to calculate the end price of the LEND token. According to its own data, over 500 ETH have been borrowed on the ETHLend Decentralized Lending Application within its first 2 weeks of operation.
Crypto Lending & Borrowing Platforms
Companies in this space serve both lenders and borrowers on the same platform. Lenders are able to earn interest or secure other loans by leveraging their digital assets, while borrowers are able to borrow in crypto.
The Celsius Network is my own project and it will serve both lenders and borrowers. It will allow lenders to leverage their crypto coins to earn interest or to secure cash loans. On the other hand, Celsius will also serve borrowers who are exclusively looking for shorting opportunities in the crypto market.
Our aim is to provide lucrative interest rates of up to 7% on loaned coins to our lenders. We aim to do this by pooling our lenders’ coins in order to offer our borrowers large sums of cryptocurrency. Unlike other platforms, lenders won’t be lending to other peers on the Celsius platform, instead Celsius’ borrowers will be large financial institutions such as hedge funds or crypto funds.
We want to attract big financial players as our borrowers because we want to help the crypto community capitalize on the short-sided view of the financial big-wigs that still don’t believe in the value of cryptocurrencies. The interest paid by these borrowers will then be paid back to Celsius’ lenders in the Celsius Degree Token (CEL).
We also plan to underwrite puts and calls for any of the top 20 digital coins in order to create a more efficient way to asses risk and forward prices of all the top crypto assets.
This platform offers tools for both lending and borrowing (between peers) via a matching system. Lenders can deposit their fiat money, then indicate the length and rate they wish to get and the system will automatically match their bid with the best offer from a peer. The borrower, in turn, provides their crypto assets as collateral and gets fiat money (in any currency — dollars, euros, etc.) at a rate up to 70% of the market value of the deposit.
The project promises up to 10% of accrued interest income, which is paid in CoinLoan tokens (CLT) at the rate of 1 CLT = $10 or 1 CLT = market price if CLT is traded > $10. The project is planning to launch in Q2 of this year and the company is currently raising money via a crowdsale, with $3.7M contributed so far.
Crypto Futures Market
The crypto futures market allows coin holders to buy and sell crypto and crypto futures contracts for delivery on a specified future date. Some finance experts expect the establishment of this market to help tackle the extreme volatility in cryptocurrency.
Both CME and CBOE recently launched their own Bitcoin futures contracts at the end of last year and attracted large financial institutions into the crypto futures market.
The Bitcoin futures market allows traders to actually trade without having to first borrow crypto. Bitcoin futures are cash settled, so there are no deals with actual Bitcoins after the contract expires.
The problem with these establishments is that the CME and CBOE are part of the traditional financial system which means that the interest and profits made from these futures contract stays in Wall Street instead of being distributed back to the crypto community.
Quoinex is a crypto exchange which claims to be fully compliant with global KYC/AML standards and legal measures issued by the Financial Services Agency of Japan. Quoinex writes its own Bitcoin futures contracts, which can be traded on its platform.
The system also supports margin trading, which is described by Quionex as a “borrow to trade” feature. Traders make deals using only a part of their own assets while borrowing from exchange members to fill the rest. An interest rate is charged to the borrower when someone trades at Quionex which is then paid out daily.
Final thoughts
A quick look at the lending and borrowing sector tells us that these types of projects are in high demand and even established players like the CME and CBOE are now forced to offer cryptocurrency futures to meet the demands of their customers.
I believe the days of big finance’s stranglehold on our lending and borrowing activities will come to an end, and in its place, a decentralized community that supports and rewards its members will grow.