DeFi, and the wider crypto borrowing and lending segment of the market, has seen significant growth over the past year. Nexo has upped – or downed – the ante with borrowing rates reduced to 5.9 percent.
Decentralized finance is a development in blockchain wherein lenders earn interest on their crypto holdings and borrowers take out loans, using crypto deposits as collateral. Some of the players are more decentralized than others, but the premise remains similar.
Nexo, BlockFi, Crypto.com, Babel Finance, and Celsius Network are all major players in the space. Celsius just added 12% interest rates on Tether to its offering; Binance has also now added lending facilities to its platform.
One criticism of the lending industry is that interest rates are quite high, especially when compared to the low yield environment in which we find ourselves. Having secured “long-term cost-efficient financing,” Nexo has now dropped its rates on its Instant Crypto Credit Lines to a low of 5.9 percent.
Those loans can be in over forty fiat currencies and its services are offered in over 200 jurisdictions. Nexo has also committed to no additional charges in its #ZeroFees initiative.
Institutional Liquidity Holds the Key
Nexo has been able to secure access to more institutional liquidity in order to offer the new low rates. With borrowing from legacy banks now extremely cheap, and all loans backed by more than 100 percent crypto collateral, the company has been able to successfully pass on savings to its customers.
Absent a significant fall in crypto prices, there is theoretically no risk to any party.
The move comes the same week that BlockFi announced a pivot toward institutional investors. As CEO Zac Prince told Crypto Briefing, BlockFi Institutional Services has been established to offer “bespoke financing solutions that allow clients access to a variety of cryptocurrencies for executing trading strategies and hedging their positions, amongst other opportunities.”
BlockFi had reported an uptick in institutional interest in the space among hedge funds, family offices, and venture capital funds. While still only less than two percent of all fund managers have exposure to digital assets, others are looking on with interest. As a result of those findings, the group is expanding services to the big money end of town.
DeFi Heat Rising
Nexo’s lowering of its interest rates indicates the market is heating up, and the lender, which services around 300,000 people worldwide, may have gained first-mover advantage by offering reduced borrowing costs.
According to the company, Nexo boasts a fully automated service, “guaranteed approvals, no hidden fees, and an unrivaled $100 million custodial insurance [service] which have appealed to a wide variety of institutional clients, hedge funds and family offices, crypto mining enterprises, blockchain companies, exchanges and everyday cryptocurrency investors.”
Interestingly, Nexo’s borrowing rate cut was not matched by a lending rate cut, which remains at eight percent. The platform famously offered the world’s first crypto-backed mortgage, to Brock Pierce.
It isn’t without competitors, though, and it will be interesting to see how others plan to compete with the platform’s new interest rates. Yields can be compared across platforms on CoinMarketCap’s new interest comparison site.
One way or the other, DeFi is growing fast. As reported recently by Crypto Briefing, Babel Finance has boosted lending volume from $5 million to $380 million in less than a year. That’s a 7,500 percent growth rate.
Nexo has processed more than $1 billion worth of loans in under 18 months.