Blockchain credit protocols are gaining attention as a promising alternative. Despite personal loans having an average APR of 11.5%, blockchain credit protocols offer a more competitive rate at 9.65%. Furthermore, the value of active tokenized private credit on blockchains has surged by an impressive 128% in the past year, totaling $582 million. Although this falls short of the peak of $1.5 billion recorded in June 2022, it indicates a resurgence.
This increasing interest in blockchain-based alternatives reflects a shift among borrowers who are seeking refuge from rising interest rates. Small business bank loans, for example, come with a wide range of average interest rates ranging from 5.75% to 11.91%. In comparison, blockchain credit protocols provide a more stable and attractive average rate of 9.64%.
RWA.xyz has been tracking a total of $4.5 billion worth of loans across 1,804 deals on blockchain-based platforms. This data suggests that the average loan size is approximately $2.5 million.
Some noteworthy recipients of these loans include Fasanara Capital, a UK-based asset management firm, which received a loan of $38.3 million from Clearpool at a sub-7% base APY. Additionally, the Brazilian bank Divibank has also embraced blockchain-based lending.
Among the various blockchain-based lending protocols, Centrifuge, an Ethereum-based protocol, stands out as the dominant player in the active loans market with $255 million, accounting for 43% of the total.
This was a significant increase from its starting point of $84 million at the beginning of 2023. Goldfinch and Maple follow closely as the second and third largest lending protocols, with $143 million and $103 million in active loans respectively.
According to data, the consumer and automotive sectors are the largest borrowers in blockchain-based lending, with $197.7 million and $186.8 million respectively. Fintech, real estate, carbon credit, and cryptocurrency trading also have representation, albeit on a smaller scale.
Although there has been a recent surge, the current market for blockchain-based lending stands at $506 million, which is still a fraction of the traditional private credit market valued at $1.6 trillion.
While blockchain-based lending holds transformative potential, it is not without risks. These risks include protocol insolvency, collateralization risks, and concerns regarding smart contract security.
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