INLOCK, the P2P lending platform, has achieved significant results in its first 2 months. 1000 successful contracts, 250 active borrowers and just to mention a few.
It already has been more than two month since we launched the INLOCK P2P lending service at the beginning of May. Now it is time to analyze how this service has performed so far. Good reason to write this article is that we have just found out that INLOCK has been added to Altfinator’s website, one of the most respected start-up funding and capital raising platforms. We are one of Altfinator’s “p2p business lending” partners, so INLOCK has became a player of the CEE region’s SME financing market as the only community lending platform.
During 2 months of operation: ~ 1,000 successful contracts, ~ loans totaling $1.5 million, 8% of the contracts were closed because they reached the hedge point, 250 active borrowers (less than 1% drop-out) and average APR of around 6%.
Of course, numbers are not everything, so we will discuss how we achieved them later.
At INLOCK, we enable our clients to get or to offer loans using our P2P platform. In order to do that, they have to use their cryptocurrencies as a collateral. The result is easy: You either make money on your cryptocurrencies, or solve your short-term liquidity problems.
INLOCK is a community-based lending platform, which means that we are not lenders, nor credit institutions. We just connect credit providers with loan seekers without using placing out our own capital as a loan.
INLOCK is a platform specialized on hedge insurance where the matchmaking process for loans is fully automated, so customers do not have to browse and select, instead:
As a lender you only have to set the amount, duration and interest rate of your loan. As a borrower you only have to set the amount in stablecoins, the duration and the overcollaterization rate of your loan.
Our results
One month prior to launching our lending service, we opened the possibility of adding lender positions in order to improve the initial liquidity of the platform. It looks like it worked very well, since the borrowers took in a week the liquidity we collected during that month. As of today, the platform has already crossed a total active loan portfolio of $1.5 million and nearly 400 loan transactions are running in parallel. However, the total number of loans has already exceeded 1000 contracts. How is it possible? Only 400 runs out of 1000 contracts in 2 months? Yes, and this is the greatest satisfaction of the majority of our customers. INLOCK focuses mainly on solving short-term liquidity problems. Although there are a lot of maximum (120–180 days) contracts, but a very large number of short-term contracts (10–30 days) are concluded. In addition, many use INLOCK’s prepayment and customer-initiated termination features as well. It also shows that the actors in the crypto economy are not looking for traditional “credit” products, but rather for more innovative quick liquidity solutions.
Of course, the question arises: How fast is the loan application process and disbursement at INLOCK? The duration of an average loan request, including: registration on the platform, deposit of collateral in Ether, loan application, allocation of disbursed USDC loan and its confirmation. Well, it does not take more time than the time you have spent reading this post so far.
Right now, when you are reading this article, there is almost 70% chance that all the credit institutions you know are closed. Now you know that there is one that works 24/7 and provides you a loan in 1–2 minutes at any time.
The number of contracts may not seem impressive, but it is worth considering that most of the required features were only completed by mid-May and we did not want to spend a lot of money on a marketing campaign during the summer season. In the light of this, we are fully satisfied with the results, as they far exceeded our expectations
Who takes a crypto-backed stablecoin loan?
The readers might wonder: Who will take a crypto-backed stable coin loan? And who offers such loan offers at all? Let’s start with the first question. What are the use cases behind INLOCK?
I could list the world-changing ideas with which INLOCK makes the world better but let’s be honest: People love to speculate and speculation needs capital. If one wants to speculate, why not do it from a loan? In recent months, major crypto stock markets have released their futures and margin trade features. Most recently, Binance has entered this market, so did Kraken, even with its conservative principles, not to mention bybit, the increasingly popular derivative trader.
So what we do is the support of speculation? Of course not, and this is why the Altfinator partnership we mentioned is so important, since speculation is seasonal. There are times when a lot of people go crazy for a product (let’s say Bitcoin), but building a business model on it would be daring.
Our goal with INLOCK is to create one of the most important liquidity management platforms in the crypto economy. A platform where the economic actors finance the capital needs of other economic actors. Let’s say need for refinancing or periodic capitalization for an investment.
The question is: Is this really needed and demanded? The answer is a definite yes, according to the EU / CMU (Capital Market Union). In March 2018, the EU Crowdfound regulation was proposed and adopted at EU level as part of the Fintech Action Plan. Currently, it is still being adapted by Member States,
In 2016, the P2P lending industry has already generated € 3.5 billion of turnover in the EU. € 2 billion of this amount was made by consumer credit, while dedicated investment loans exceeded € 750 million.
Of course, P2P crypto-backed stablecoin lending platforms, such as INLOCK, make a small part of the P2P lending market.
However, advantage and innovation are in favor of these types of products. People use peer-to-peer lending platforms because processing a contract is much more flexible and faster than at a traditional bank loan. Compared to this, crypto-based stablecoin platforms have an even shorter tour-around, not to mention lender risks, which are only marginal due to the guaranteed collateral security.
Who offers a crypto-backed stablecoin loan?
In EU countries with more advanced financial culture, P2P credit can be obtained for almost anything. Be it real estate collateral security, general purpose loan, credit score or even equity loan in the form of a convertible note. A convertible note provides equity coverage if the company is unable to repay the loan taken. BnkToTheFutures is already providing a peer-to-peer solution for this type of loan.
However, it can be seen that the lender runs more risks with these hedging instruments, as there is no 100% guarantee of repayment. Obviously, there is no higher priority for the lender than to get his loan back. This is where cryptocurrency loans come into play, including innovative solutions such as INLOCK that work with automatic collateral management. In the case of INLOCK, an automated margin call management system manages all collateral, notifies clients of changes in collateral levels, handles repayments and collateral withdrawals and initiates forced terminations if the hedge point falls to an extremely low level.
At INLOCK we allow borrowers to set very low overcollaterization rate, which can be reduced to 110%. It means that even a fall of 4–6% in the exchange rate could cause a forced termination (forced sale of collateral and closing of contract).
Since the launch of INLOCK’s platform, about 8% of the disbursed loans has been terminated, all of them counted with a 110–115% overcollaterization rate. Looking at the Bitcoin and Ether charts, one could assume that loans with a higher overcollarization rate should have been terminated as well. Luckily, most of our clients are careful when it comes to the management of their loans and take advantage of the solutions provided by our platform to smartly manage hedge points.
As a result, since the launch of the platform, there has never been a case where the lender would not be able to get back its capital plus interest. In fact, based on the experience of the past two months, we do not really think that this could ever happen.
Another question is: Where do customers get stablecoin? We can tell you that most lenders have stablecoin because of their exit from previous crypto investments. Placing unused stablecoin as a loan is an economically good decision, as it generates interest this way.
Good news for us is that more and more customers are using INLOCK as a hedge and risk management solution. This reduces their exposure to volatile cryptocurrencies and offsets any losses they may cause. If we had to highlight one of the reasons why INLOCK was worth creating, I would definitely point out this:
In the fast and changing environment of cryptocurrencies, it is important to diversify your investments appropriately. It is a well-known fact that the diversification between coins and tokens of cryptocurrency markets does not really give your portfolio much protection as they are too correlated. It can be said that Bitcoin essentially moves the whole market. As a lender, INLOCK gives you the opportunity to diversify your portfolio and thus reduce its exposure to risks.
Currently, the number of our lenders (both individuals and companies) is very small, we have nearly 250 lenders with lending position and we are proud that only 1% of the lenders have taken their placements off the platform due to dissatisfaction. At this very moment, the average contract runs at an APR of 6.7%, but the dispersion is very high. We have contracts with APR ranging from 3 to 18%. In fact, although it is no longer running, there was a contract with 21.6% too. Interest is always determined on the basis of supply and demand, depending on the duration and the amount required. The lender and the borrower are unable to contact through the platform in any way, and in most cases, the borrower receives a ‘spray loan’, so the capital and interest is owed to several different borrowers. This is mainly achieved by the fact that only a whole number of APRs (annual interest rates) can be entered on the lender’s side, thus allowing for a better blocking of the offers.
“Instant and guaranteed without credit check”
Well, yes, these three key words are a summary of the benefits of crypto-based credit platforms, which make them vital and increasingly demanded. On the lender side, this is accompanied by the “Stockholm syndrome” caused by traditional banking services, where a single investor may choose between two options. You either have zero interest in your investments, which can just compensate for inflation or instead put your money in high-risk deals (MIFID, MIFID) where, in fact, you are playing a Russian roulette
Why Become a Community Lending Platform?
I would not like to position INLOCK or other similar platforms in some kind of merciful role. After all, each of these platforms has its own profit items. Of course, INLOCK stands out, since the lender site is completely free, there is no charge for placements. For the borrower there is only a ‘collaterization fee’, the platform does not receive any interest income. Of course, this is only true until we are talking about good loans that are sufficiently insured, no margin calls are made and are repaid on time. If the platform has to intervene in the collateral security, then there are significant costs involved.
It might be a legitimate question for customers what to do with their stablecoin (USDC) loans. Apart from buying more Bitcoins, of course. For now, there is no good answer, not least because we do not have such a relationship with the borrowers to be able to ask them. We assume that most people will probably change it to fiat and get what they need. The local exchange industry built on this is also evolving. For example, all major domestic bills convert USDC to fiat and vice versa. More importantly, the adaptation of stablecoin is spectacularly outpacing cryptocurrency. More and more services are already adopting stablecoin, a practice that will surely be further enhanced by the appearance and adaptation of Libra.
We are also aware of a company that has paid part of its employees’ wages in Bitcoin. However, since the launch of INLOCK, it has preferred to use crypto assets as a collateral and distribute the wages in stablecoin. According to other feedbacks, there are customers who have begun to switch from euro to USDC when transferring, thus saving a considerable amount of bank costs. Of course, it will take a long time before these closed or semi-closed ecosystems can effectively be separated from the current payment systems.
However, the huge demand is shown by the fact that loan offers with APR below 8% are immediately taken. Those below 15% are also usually taken within a few days if the market is moving. This is why we had to send extraordinary announcements to lenders twice in the past month in order to attract extra placements, as the supply side fell significantly low due to high demand.
And what about the Network Effect?
The key to INLOCK’s success is to be known and used by a wide range of people. The essence of a peer-to-peer service is that people want to use it and spread its reputation. This kind of expansion is usually defined as a network effect.
We recently launched our “Pioneer” program to reward those who help build and boost the platform’s active customer base. Participants in the Pioneer program benefit from the platform revenue generated by the clients they bring in. This is a one-tiered referral system that avoids the appearance of MLM.
To expand our active customer base, we don’t want to rely only on the Pioneer program, we also will be using a number other tools and channels from September. After that we plan to start listing the ILK Token stock market at the beginning of the last quarter.
This is the amount of information I can provide after two months of activity. Thank you to everyone who is a user or token holder at INLOCK, and thank you to everyone who is helping us in any way!
In the future, I plan to publish one or two reports on INLOCK every 2–3 months, first in Hungarian on the variance.hu blog and then in English on INLOCK’s social media channels. I myself look forward to seeing how our numbers will turn out in the upcoming year.
