Blockchain-based lending has experienced a significant resurgence in 2023, as the value of active tokenized private credit has surged to an impressive $582 million, representing a staggering 128% increase from the previous year,
According to data from real-world asset loan tracker RWA.xyz. While this figure remains below its peak of $1.5 billion in June 2022, this resurgence indicates a growing interest in blockchain-based lending solutions, particularly in the face of rising interest rates in the traditional financial sector.
Competitive interest rates on blockchain credit protocols
One of the key attractions of blockchain-based lending is the competitive interest rates offered by credit protocols on the blockchain. Data shows that the average annual percentage rate (APR) for blockchain-based credit protocols stands at an appealing 9.64%, significantly lower than the average interest rate for personal loans, which currently hovers around 11.5%.
This substantial interest rate differential makes blockchain-based lending an attractive option for borrowers seeking cost-effective financing alternatives.
Traditional financiers have been offering small business bank loan interest rates ranging from 5.75% to 11.91%, as reported by NerdWallet in a December 1st update.
With blockchain credit protocols offering a middle ground between traditional and personal loan interest rates, borrowers are finding these decentralized lending platforms increasingly appealing.
Sizeable loans and notable participants
Blockchain-based lending is not limited to small-scale loans. RWA.xyz has identified a total of $4.5 billion in blockchain-based loans across 1,804 deals, resulting in an average loan size of approximately $2.5 million.
These substantial loan sizes indicate that blockchain lending platforms are catering to a diverse range of borrowers with varying financial needs.
Several notable participants have entered the blockchain-based lending arena. Among them is Fasanara Capital, a United Kingdom-based asset management firm, which secured a $38.3 million loan from Clearpool with a base annual percentage yield (APY) of less than 7%. Brazilian bank Divibank is another financial institution actively participating in the blockchain lending market.
Dominant players in the blockchain credit space
In the blockchain credit sector, Ethereum-based Centrifuge stands out as a dominant player, currently holding over 43% of the active loans market, totaling $255 million. This represents a remarkable increase of 203% from its starting point at $84 million at the beginning of 2023. Following Centrifuge, Goldfinch and Maple are the second and third largest blockchain credit protocols, boasting $143 million and $103 million in active loans, respectively.
To facilitate these loans, cryptocurrencies like Tether (USDT), USD Coin (USDC), and Dai (DAI) play a pivotal role, as they are commonly used to collateralize transactions and provide stability in this decentralized lending ecosystem.
Diverse loan sectors
The blockchain-based lending market serves a diverse range of sectors. The consumer sector leads the way with loans totaling $197.7 million, closely followed by the automotive sector with $186.8 million in loans. Additionally, fintech, real estate, carbon credit, and cryptocurrency trading sectors are actively participating in blockchain-based lending, showcasing the versatility and adaptability of these platforms.
Despite the remarkable growth and competitiveness of blockchain-based lending, borrowers should be aware of certain risks associated with this emerging sector. It is essential to carefully assess factors such as insolvency, collateralization, and the reliability of smart contracts when considering blockchain-based loans. Due diligence and a comprehensive understanding of the blockchain lending process are crucial to mitigate potential risks.