Lending: A Promising Niche in the Blockchain Industry
Advanced Blockchain AG has identified lending as a particularly interesting and lucrative niche within the blockchain industry, as this financial sector suffers from a lack of technical innovation.
While the financial technology (FinTech) and decentralized finance (DeFi) revolutions have spurned many financial sectors to embrace new technologies, the lending sector has fallen behind its peers. Despite the availability of new technological advancements such as blockchain, the lending industry has remained largely unchanged over the past few decades. As a result of this industry being slow to change, lenders and borrowers alike suffer in a multitude of ways.
However, Advanced Blockchain AG has identified the lending industry as a high-potential field for implementing new blockchain-based projects. Advanced Blockchain AG is actively working to improve the lending space with one of its newest projects, FinPro, as well as other DeFi projects we are working on in a variety of capacities.
The lending field overall suffers from a lack of technological innovation:
The lending industry is quite antiquated, both in terms of the financial software available as well as the overarching financial infrastructures. From a consumer standpoint, loans can often be very inaccessible, necessitating significant amounts of capital, a lengthy timeframe, and other strict borrower requirements. The average individual is also unable to benefit from investments in loans, which tend to be relatively low-risk and profitable, due to strict accreditation requirements and high investment minimums. Even at the larger, syndicated loans level, the banking industry is antiquated – software systems used by banks and other loan counterparties are overly complicated, require a high degree of manual entry and checking, and are unnecessarily slow. As a result, borrowers and lenders alike could be saving (or making) significant amounts of money, time, effort, and risk if the lending industry as a whole worked to modernize its structuring.
Blockchain technology can help modernize and improve the lending process in many ways:
Blockchain technology is optimally poised to help drive the lending industry forward. Different types of blockchains and the projects that operate along them can offer a multitude of advantages to the lending industry:
Banks’ approval and rejection policies are opaque, based off of an internal scoring system that is generally not revealed to the borrower. Blockchain protocols, on the other hand, are as transparent as possible, since all decisions made on these applications are done via smart contracts, which are accessible for viewing on the blockchain network. Other aspects of the loan are also made visible to borrowers thanks to blockchain, including interest rate calculations and terms of the loan.
In traditional banking systems, the borrower has no say as to the decisions regarding their loans. Banks often make riskier decisions with these loans than blockchain projects might choose to. For example, banks tend to undercollateralize, rather than overcollateralize loans, meaning there is an increased risk to the actual provider of the money, who would not be able to get their full money back in the case of loan insolvency.
The vast majority of lending projects emerging in the blockchain space require a substantial overcollateralization, managing cryptocurrency as collateral for other liquidity, thus decreasing this risk. This procedure also acts to increase the liquidity and stability of the blockchain protocol overall.
Another disadvantage of typical bank lending is that assets must be liquidated as a part of the fee of assessing these assets, which can often be a complex and thus costly procedure. Blockchain-based lending makes it incredibly straightforward to perform a valuation of assets, as cryptocurrencies are accepted as collateral at their present exchange rates. Furthermore, no down payment is required thanks to the overcollateralization of these blockchain-based loans, meaning borrowers will not have to liquidate assets to cover this cost.
A core tenet of the blockchain industry is improving financial access and equality. Blockchain-based lending upholds this ideal in a variety of ways. For one thing, blockchain-based lending can be accessed from anywhere in the world, without the need for permanent residency and other documents within a certain country. Blockchain procedures for lending are also able to remove credit score requirements, which may preclude many individuals from being eligible for loans. These protocols can lower the requirements for borrowing thanks to their overcollateralization, which makes these loans very low risk to lenders. Furthermore, blockchain-based lending projects are also exploring the novel field of fractionalizing (breaking up) loan investments, enabling users to profit off of these lucrative investments without needing substantial amounts of capital to invest.
Advanced Blockchain is working to promote blockchain-based lending with its project FinPro, as well as various other DeFi projects it is supporting in various capacities:
In particular, one of Advanced Blockchain AG’s newest projects, FinPro, is striving to resolve limitations in the existing lending industry with their blockchain-based solution. FinPro’s primary aim is making investments in loans and other assets available to the general populace.
Digital asset investment company FinPro fractionalizes and tokenizes assets for investments. By breaking up investments in this manner, FinPro vastly decreases investment minimums, while simultaneously increasing security, cost-efficiency, and ease of transactions thanks to its blockchain basis. While FinPro intends to offer many types of investments on its platform, its initial focus will be fractionalizing and tokenizing loans in industries that find it traditionally difficult to secure funding. Thus, FinPro increases accessibility and the potential for profitability for both borrowers and the investors who are effectively financing these loans; companies that find it difficult to get loans now have easier access, and investors who would not normally be able to fund loans are able to benefit from these investments.
Advanced Blockchain AG is looking into expanding into more facets of this industry as well, uncovering many interesting, novel, and potentially lucrative use cases for blockchain in the lending field.
For more information about Advanced Blockchain AG check out advancedblockchain.com.