Recently, Swiss technology firms CLST and FQX used the Algorand blockchain for developing a $5 million loan for Amber Group, a Singapore-based crypto trading company. The Amber Group took possession of the loan in USDC against a promissory note. The loan amount and the promissory note exchange took place simultaneously on the blockchain without the need for a bank license.
FQX is a platform built on the Swiss Trust Chain, a distributed ledger technology system hosted by Switzerland's telecom provider Swisscom. The blockchain-compliant promissory note used in this transaction was generated on the FQX platform itself. At the same time, CLST makes the connection between borrowers and cryptocurrency lenders. It follows a similar model to fintech companies in traditional financial markets, like Instimatch, a digital platform connecting institutional borrowers with corporate lenders. However, for CLST, money exchange is purely digital and decentralized on the blockchain.
When the value of Bitcoin and other cryptocurrencies exploded in 2021, many early blockchain projects were sitting on a lot of money. So they were willing to lend some of it to other blockchain companies for trading and investing. However, cryptocurrencies are very volatile in value, with fluctuations in thousands of dollars even within a day. That is why lenders often demand cryptocurrency collateral that exceeds even the loan's value. This is why CLDT thinks that loans should be generated without collateral backing, as it creates a drag on the whole market.
Many DeFi platforms worldwide are trying to enable no-collateral crypto loans like Maple Finance and Truefi. But CLST, FQX and Amber Group claim to be the first purely crypto loan by using the same legal instrument as the Knights Templar, an eNote. However, the massive efforts going into the crypto lending and borrowing market seem to attract a lot of unwanted attention from regulatory bodies. For example, BlockFi was recently fined $100 million for providing unauthorized securities (Find BlockFi Review here).
If you are new to crypto lending and borrowing, we suggest you check out detailed reviews and platform comparisons to make the most out of your crypto investments. While different platforms take different measures to generate yield on your investments, you still stand at a risk of market volatility. For earning interest without facing the volatility of the crypto market, try Bitcompare's Beginner's Guide To Earning Interest On Stablecoins.