{"id":8163,"date":"2020-02-18T00:59:09","date_gmt":"2020-02-17T22:59:09","guid":{"rendered":"https:\/\/forklog.media\/?p=8163"},"modified":"2020-02-18T19:28:50","modified_gmt":"2020-02-18T17:28:50","slug":"lending-tops-%d1%81rypto-industry-by-roi-what-can-go-wrong","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/lending-tops-%d1%81rypto-industry-by-roi-what-can-go-wrong\/","title":{"rendered":"Lending Tops Crypto-Industry by ROI: What Can Go Wrong?"},"content":{"rendered":"

Lending is <\/span>named<\/span><\/a> the most profitable sector of the crypto-industry by return on investment. The niche keeps attracting capital and is expected to grow further in 2020. Akin to DeFi in general, the niche holds a lot of promise, but there is the other side to consider.<\/span><\/p>\n

<\/p>\n

forklog.media rounds up the relevant numbers, suggested risks, and perspectives from traditional finance veterans and people from the crypto-industry.<\/span><\/p>\n

ROI Distribution In Crypto-Industry<\/span><\/h2>\n

The metric enjoying media attention is the median return on investment in USD for the past year and 90 days. The numbers were <\/span>published<\/span><\/a> by Longhash and the dataset for 349 tokens came from an analytics firm <\/span>Messari<\/span><\/a>. The analysts divided the tokens by sector: lending, scaling, exchange, stablecoin, etc. Lending, the sector in question, includes 8 tokens, only five of which had a positive ROI: Maker, Nexo, Ripio Credit Network, Aave, and Cred.\u00a0<\/span><\/p>\n

Nevertheless, with ROI over 75% for the past year and 15% for the past 90 days lending outpaced every other sector. It is also the only one to show a positive median ROI for both the year and 90-day intervals.\u00a0<\/span><\/p>\n

\"ROI<\/p>\n

ROI in percent vs. USD, by industry sector. Chart by <\/span><\/i>Longhash.com<\/span><\/i><\/a>\u00a0<\/span><\/span><\/p>\n

According to Longhash, the chart doesn\u2019t include sectors represented by 5 or fewer tokens, and the median was chosen, because the researchers found it more representative of the overall trend, than the average.\u00a0<\/span><\/p>\n

It is also noted that none of the sectors in the dataset exceeded the 140% ROI of Bitcoin over a one-year timeframe.<\/span><\/p>\n

Crypto-Lending Market Dynamics<\/span><\/h2>\n

Several reports published by crypto-lending companies and researchers since Q2 2019 indicate the growth of the lending niche.<\/span><\/p>\n

A <\/span>Q3 2019 report<\/span><\/a> on crypto-lending published by CredMark in December 2019 estimates that over $6.4 billion in crypto-loans was issued through September 2019. According to CredMark\u2019s <\/span>report<\/span><\/a> for the previous quarter, by that time the issued loans amounted to $4.1 billion.\u00a0<\/span><\/p>\n

As <\/span>pointed out<\/span><\/a> by CoinDesk, loans issued by Genesis, a large crypto-lending company, increased by 21% during Q4 2019, compared to roughly 2% growth shown by JPMorgan, the biggest bank in the U.S.<\/span><\/p>\n

\u201cObviously the crypto sector is not even a beauty mark right now compared with the banking sector, in terms of the size and maturity. But there is rapid growth in this new market, and it\u2019s not just us. There are other companies trying to accomplish similar things,\u201d<\/i><\/b> Genesis CEO Michael Moro told CoinDesk.<\/span><\/i><\/p><\/blockquote>\n

Notably, a <\/span>report<\/span><\/a> by Ripple for Q4 2019 explains the growth of crypto-lending by low-interest rates in many fiat currencies, a growing number of digital asset market participants seeking working capital, and an increasing number of long-term digital asset holders looking to generate yield.\u00a0<\/span><\/p>\n

Genesis <\/span>Q4 2019 report<\/span><\/a> also suggests that in 2020, crypto-lending will be boosted by miners seeking to upgrade their equipment in anticipation of the halving event.<\/span><\/p>\n

\u201cAs we approach the halving this year, we\u2019re expecting a handful of the largest miners to upgrade their facilities to become more efficient as they\u2019ll be compensated less per block mined.\u201d<\/i><\/b><\/p><\/blockquote>\n

The report also speculates that a more welcoming cryptocurrency regulation can let more capital flow into lending across Europe and China.<\/span><\/p>\n

Fear of Lending Bubble and Other Risks<\/span><\/h2>\n

According to <\/span>Bloomberg\u2019s take<\/span><\/a> on the crypto-lending boom, people from Wall Street think that the niche \u201chas expanded too quickly and is headed for a blow-up.\u201d They are concerned about lax lending standards and a large amount of money per borrower, as well as the general analogy with the 2008 financial crisis.\u00a0<\/span><\/p>\n

\u201cCrypto is still a small market relative to traditional asset classes, however, the feeling of deja-vu is there: lack of regulation, cheap credit available with minimal due-diligence, and broad optimism,\u201d <\/i><\/b>Matthieu Jobbe Duval, Head of Financial Products at CoinList, said to Bloomberg.<\/span><\/i><\/p><\/blockquote>\n

Another risk pointed out is the notoriously high volatility of cryptocurrencies. We have already <\/span>mentioned<\/span><\/a> in our take on DeFi\u2019s $1 billion milestone that the price fluctuations may lead to under-collateralization and cascading liquidation of loans, which would be quite harmful to the sector. As CredMark <\/span>reported<\/span><\/a>, for Q3 2019, the active debt grew by 23%, while active collateral grew by 12%. The researchers believe that the discrepancy took place \u201cprimarily because collateral contains a larger percentage of crypto than debt (which includes more fiat\/stablecoins), and crypto lost 25% of its value during the quarter.\u201d\u00a0<\/span><\/p>\n

There are also the usual risks when it comes to technological infrastructure. Since lending platforms rely on tokens and blockchains, they inherit the flaws and vulnerabilities of the underlying system.\u00a0<\/span><\/p>\n

Main Takeaways<\/span><\/h2>\n

The crypto-lending is likely to have a lot in common with the entire DeFi sector since lending companies apparently <\/span>constitute<\/span><\/a> the larger part of all DeFi projects. To summarize, the most tangible risks of crypto-lending are related to potentially hostile regulations, high volatility of cryptocurrencies, and the lack of standards and due diligence across the niche.\u00a0\u00a0<\/span><\/p>\n

From what it looks like, the crypto-lending niche isn\u2019t growing without a reason. As we are still waiting for mass adoption to come, there are entire groups of users, such as miners, who really need crypto-lending solutions and will continue contributing to the niche\u2019s wellbeing. The traditional lending solutions won\u2019t cut it because of the regulations and requirements that won\u2019t fit a cryptocurrency-related business.<\/span><\/p>\n

All in all, there is room for speculations regarding the future of crypto-lending and the food for thought is abundant. Especially when the upcoming halving in Bitcoin and CBDCs, which is the new hot thing anticipated to shake monetary systems around the world, are stirring up the industry and raising all sorts of questions.<\/span><\/p>\n

Follow us on <\/b>Twitter<\/b><\/a> and <\/b>Facebook<\/b><\/a> and join our <\/b>Telegram channel<\/b><\/a> to know what\u2019s up with crypto and why it\u2019s important.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

Lending is named the most profitable sector of the crypto-industry by return on investment. The niche keeps attracting capital and is expected to grow further in 2020. Akin to DeFi in general, the niche holds a lot of promise, but there is the other side to consider.<\/p>\n","protected":false},"author":6,"featured_media":8165,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"human_written","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[30,1093,1097],"class_list":["post-8163","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-cryptocurrency","tag-defi","tag-lending"],"aioseo_notices":[],"amp_enabled":true,"views":"425","promo_type":"1","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/8163","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=8163"}],"version-history":[{"count":6,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/8163\/revisions"}],"predecessor-version":[{"id":8179,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/8163\/revisions\/8179"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/8165"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=8163"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=8163"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=8163"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}