New Generation of Crypto Ventures Expand Risk-Taking with Digital Asset Loans

A new wave of high-risk, high-reward crypto ventures are emerging in the digital assets market, three years after a market crash triggered a wave of insolvencies for lenders. These ventures are offering unbacked, short-term loans to individuals, leveraging advanced technologies like AI and blockchain to reduce risk. The loans, often with interest rates ranging from 20 to 30 percent, are targeting underserved communities overseas.

Key Takeaways:

• Divine Research, a San Francisco-based lender, has extended roughly 30,000 unbacked short-term loans since December, working with OpenAI chief Sam Altman's World to identify borrowers.
• Crypto lending, a highly risky part of the digital assets market, blew up in 2022 after a fall in crypto asset prices triggered a spiral of defaults and bankruptcies.
• The price of bitcoin has raced to record highs, and major financial institutions like JPMorgan are considering dipping their toes into crypto lending.
• Divine Research uses Altman's iris-scanning system to verify borrower identities and prevent defaulters from creating new accounts.
• 3Jane, a peer lender, is extending uncollateralized USDC credit lines on the Ethereum blockchain, with fixed interest rates and verifiable proofs of crypto, bank assets, or future cash flows required.
• The crypto industry sees unsecured lending as a huge opportunity, but critics argue that anonymity and enforcement issues limit the technology's appeal.
• Defaulted loans on the 3Jane protocol are sold to US collections agencies, while 3Jane is developing a new lending platform that would involve AI agents that can execute tasks based on user instructions.
• US-listed crypto exchange Coinbase has teamed up with OpenAI to create AI agents with their own crypto wallets and "equipped with commercial and monetary capabilities".
• Wildcat, a protocol for market makers and crypto trading firms, has lent roughly $170mn to date, offering highly customisable credit facilities using Ethereum.

Statistics:

• 40% average default rate for the first loan taken out by Divine Research borrowers.
• Roughly $170mn lent on Wildcat's platform to date.
• Interest rates for loans offered by Divine Research range from 20 to 30 percent.
• Divine Research has extended roughly 30,000 unbacked short-term loans since December.
• Average loan amount for Divine Research is less than $1,000 worth of Circle's USDC.

Sources:

• The Financial Times
• OpenAI
• World
• Divine Research
• 3Jane
• Coinbase
• Paradigm
• US-listed crypto exchange
• Wildcat
• Clearpool
• TrueFi
• Juan Mabromata/AFP/Getty Images