Stablecoins Can Help Fix the Current Lending Market

Lending
markets
are
evolving,
transitioning
from
a
traditional,
bank-centric
framework
to
a
more
diverse
and
technologically
advanced
ecosystem.
This
evolution
is
particularly
evident
since
the
Global
Financial
Crisis
(GFC)
and
is
fundamentally

reshaping
the
landscape
of
capital
aggregation
and
distribution.

However,
the
current
market
structure
still
faces
considerable
friction.
We
believe,
integrating
blockchain
into
the
existing
financial
tech
stack
will
improve
the
efficiency
of
capital
flows
and
expand
access.

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Blockchain-enhanced
capital
distribution

The
diminishing
role
of
traditional
banks
in
capital
distribution
post-GFC
has
paved
the
way
for
fintech
lending
companies
like
SoFi
and
Ramp.
These
firms
are
filling
the
void
with
innovative
solutions
such
as
buy
now
pay
later
(BNPL)
options
by
leveraging
online
platforms,
data
analytics
and
machine
learning.

Despite
advancements,
issues
like

archaic
payment
systems
and

SME
funding
gaps
persist.

Stablecoins
can
help
overcome
these
challenges
by
revolutionizing
fund
disbursement
with

superior
cost
and
speed.
By
leveraging
stablecoins,
fintechs
can
tap
into
new
markets
with
limited
access
to
conventional
banking
services,
offering
more
accessible
and
efficient
financial
solutions
at
a
global
scale.

The
$150
trillion
opportunity

Private
credit
has
flourished
post-GFC,
growing
to
$1.6
trillion
and
becoming
a
competitive
source
of
large
scale
financing.
However,
compared
with
the
state
of
innovation
in
capital
distribution,
capital
aggregation’s
growth
historically
was
hindered
by
its
manual
processes
and
too
many
intermediaries,
which
made
onboarding
large
numbers
of
smaller
ticket
LPs
uneconomical.

Tokenization
can
streamline
and
automate
these
intensive
operational
processes.
Such
efficiency
brings
two
major
advantages.
Firstly,
it
is
now
more
economically
viable
to
underwrite

smaller
loans.
Secondly,
it
democratizes
investment
opportunities,
lowering
barriers
to
entry
for
a
broader
spectrum
of
lenders,
including
those
with
smaller
capital
contributions
often
overlooked
today.
Other
benefits
include
improved
transparency,
secondary
liquidity,
and
simplified
risk
customization
enabled
by
the
programmability
of
smart
contracts.

According
to
recent

research
by
Bain
&
Co,
alternative
investments
are
underrepresented
in
individuals’
portfolios
(individuals
own
50%
of
global
wealth
but
only
5%
allocated
to
alternatives,
while
public
pensions
allocate
about
25%
to
the
same
asset
class).
And
while
disparate
liquidity
demands
and
the
highly
manual
nature
of
the
alternative
fund
industry
are
barriers,
Bain
presents
a
clear
case
that
tokenization
can
help
the
private
markets
industry
tap
into
the
$150
trillion
individual
investor
segment,
“unlocking..
potentially
$400
billion
in
additional
annual
revenue
for
the
alternatives
industry.”

Outlook
for
blockchain-based
credit
ecosystem

In
conclusion,
blockchain
technology,
through
innovations
like
stablecoins
and
tokenization,
is
pivotal
in
advancing
efficiency
and
access
to
capital
markets.