A large number of cryptocurrency-based loans have been issued, however lenders are not earning significant profits.
Approximately $4.7 billion in crypto loans have been issued so far, and only $86 million has been earned through interest payments, according to Graychain’s report on the collateralized digital assets lending industry.
Only 1.8% Returns on Crypto Loans
The amount paid in interest is a meager 1.8% of the total funds loaned, while loans have cost borrowers an estimated 6-10% per annum.
The crypto lending sector might appear to be more prominent than it actually is, if we focus only on the “really huge originations” that companies are doing, Neil Zumwalde, Graychain’s CTO, tells Coindesk.
However, Zumwalde notes that while firms have large originations, they’re originating really short-term loans. A loan can be issued quickly and then closed, but in these cases, the lender may earn very little because the time period is too short for generating significant interest payments.
Private Chain Loan Data Not Available for Analysis
Researchers at Graychain looked at publicly available lending data from Compound, dYdX, MakerDAO, and Nuo. The Graychain team was unable to view data from private blockchains such as Celsius and Genesis, which account for 65% of the total originations.
Graychain explains how it arrived at the conclusions presented in its first market report:
“A good proxy for the industry’s health is the amount of interest collected. We have estimated this number. We calculated the rate at which many of these loans are liquidated or matured, and applied the average interest rate for each platform.”
While performing its market research, Graychain also looked at private data provided by Compound, Dharma, Unchained Capital, and Maker. In order to prepare its report, Graychain’s team reviewed public statements and marketing materials from lending firms that didn’t take part in the research.
Second Quarter 2019 Loans Surpass $150 Million
Although the digital currency lending sector has not been able to offer substantial returns, the research suggests that there is high demand for the business.
According to Zumwalde:
“The lending industry is maturing really, really quickly in this space. These markets are becoming more mature and people are trusting it more with their assets.”
During Q1 2019, Graychain was able to track 5,462 new crypto loans, while in the second quarter, companies had issued 18,562 new loans. First quarter loans totaled $64.8 million, and second quarter loans grew to $159.3 million.