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Blockchain Technology and the Potential Impact on the Lending Market

 5 min read / 

Some analysts have suggested that the cryptocurrency market’s “chickens may be coming to roost” following the recent plunge in the price of Bitcoin alongside several other altcoins. Yet, this is nothing new to the market. This has been seen before.

Demystifying the Meltdown Myth

The price of Bitcoin rallied to $1147 in December 2013, but by April 10th of the following year, it had fallen to just over $360. The price later dropped to below $250 in 2015 before embarking on a long journey that took bitcoin to new all-time highs.

While the decline in monetary terms may have been significantly lower than what investors lost in the most recent pullback, it was far higher in percentage terms after it wiped out nearly 70% of the market value of bitcoin. The most recent decline based on the current price represents just over 50%. So, it is fair to say that the chickens might not be coming to roost anytime soon.

The significance of this statement relative to the lending market is that with the cryptocurrency market continuing to grow, more players will come in with new products looking to address other areas of the global financial markets. And because of the success of the already existing altcoins, consumers will embrace the new products easily thereby increasing market traction.

The Time to Disrupt the Credit Market Has Arrived

The credit market is one of the most interesting candidates out there that altcoin creators could look to disrupt. Already, there are two top companies pursuing this opportunity. The most popular one among cryptocurrency traders is SALT Lending. The other one is Australia-based Othera.

SALT Lending, which currently has a market cap of over $210 million, has created a platform that allows cryptocurrency traders to use their crypto assets as collateral for loans.

While this idea might at first sound far-fetched to the mainstream lending market, all signs are pointing to a market where most assets are purchased and sold on the blockchain network. The real estate market, which encompasses different asset types that are widely used as collateral is already being added to the blockchain ecosphere through tokenization. This could especially make a huge impact on the hard money lending market, which requires borrowers to provide an asset as collateral. In a few years, several asset types could as well find themselves tokenized and tradable across the globe.

Blockchain technology has already made an enormous impact in the currency markets. Some people may have written off the idea of cryptocurrencies like bitcoin eventually replacing fiat currencies, but an objective opinion would be the one that says the jury is still out. In addition, this does not mean that the disruptive force of the blockchain technology won’t get through to other industries. Tokenization of income assets could be what the future holds for the crypto economy.

SALT Lending CEO Sean Owen revealed in a recent comment that unlike other altcoins, SALT will act as an interface that allows users to hold assets and take loans against them. In the initial stages, users of SALT Lending will be able to use crypto assets like Bitcoin, Ethereum, and a few other altcoins as collateral against loans, but speaking during an interview with The Epoch Times last November, Owen said that other assets will be added in time. And while the initial idea was to allow users of SALT Lending to take loans against their digital wealth, this could evolve into a market-wide solution for the digital economy.

This is where the importance of blockchain counts massively. By using the secure decentralized ledger database that the technology supports, companies will be able to bring other markets and assets into the crypto world. This will essentially allow users to have a variety of options to choose from their crypto assets.

In the current digital world, things are happening fast. For businesses to keep up with the trend they might as well have to embrace the use of crypto assets in other ways than trading.

The Australia-based Othera is slightly different from SALT Lending. According to a report on City A.M. Othera allows businesses and investors to take tokenized loans that are backed by business cash flows. The tokenized loans “can then be sold on an exchange, turning a traditionally fairly illiquid asset into a highly liquid digital asset,” the report says.

Othera founder and CEO, John Pellew, has been quoted saying that the company could eventually create a market akin to the ETF market, but we will have to wait and see how things will unfold especially given the fact Othera is not yet available on major altcoin exchanges.

Conclusion

In summary, the blockchain technology is revolutionizing several industries and the lending market happens to be one of the latest additions to that list—credit to SALT Lending and its peers. While some of the startups targeting this market want to allow users to take loans against the likes of bitcoin and Ethereum, the impact of tokenization of income assets could soon grow the portfolio of digital assets that users of platforms like SALT Lending can access for collateral.

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