Altonomy CoFounder Touches on the Impact of On-Chain Crypto Lending and Borrowing Services
Distributed ledger technology is a much-discussed area due to its ability to transform traditional banking, especially in areas of lending and borrowing. Two specific areas that such technology works to resolve in the banking industry is liquidity and application of legal actions. It also helps resolve issues regarding credit. The specific technology that helps the credit field is called “on-chain” technology.
However, on-chain technology has its challenges to true adoption and they stem from three areas, such as the maturity of the technology, lending and borrowing operations, and trading and settlement.
To begin, the maturity of technology applies to lenders and borrowers who focus on security and credit. With blockchain technology, they have access to smart contracts. However, the considerations with these contracts including their safety and viability of auditing practices.
Second, as for lending and borrowing operations, this is a paperwork-intensive process. Credit checks must be performed, and KYC/AML work must be completed as well. With on-chain solutions though, the process could be more successful and sped up as well.
Finally, as to trading and settlement, there are issues concerning how fast it can settle trades. At this point, the average margin is 25 minutes. However, for faster times, the market needs to be more liquid.
The big question is how these impediments to on-chain lending can be resolved. First and foremost, lenders should be certain about the information that will mitigate the risk of hacking so that their enterprise and finances stay safe. As for operations concerning lending and borrowing, a potential solution is a technology that works to streamline the matters, such as self-populating forms. There also should be trusted liquidity providers so that lenders can manage margins better and mitigate market risk.
On-chain lending has a good chance of becoming mainstream and it may just occur within the next few years. Of course, there will be challenges, but that can be said of every technology that tried to become mainstream.