Last week, peer-to-peer Bitcoin trading platform Hodl Hodl unveiled Lend, a Bitcoin-centric lending platform promising to recast Bitcoin’s lending sector by scrapping fiat, KYC, and custody.
— Adam Back (@adam3us) October 22, 2020
Capitalizing on the rise of decentralized finance (DeFi), Lend opts for a peer-to-peer, non-custodial paradigm, in which users can collateralize bitcoin to borrow a host of stablecoins – all without the trouble of going through KYC.
“We’ve been non-custodial, and non-KYC as a result, since inception,” Hodl Hodl CEO Max Keidun told the BTC Times.
Being non-custodial means the platform neither holds the funds nor processes them. Instead, loans occur directly between users. For propagators of the mantra, “not your keys, not your bitcoin,” this feature couldn’t be more important.
As a result, Lend forgoes KYC checks, simply because it lacks the required data which would otherwise demand KYC. This, says Keidun, means Lend is exempt from regulation in most jurisdictions – if not all.
The Perks of Not-Knowing-Your-Customer
For WhalePanda, an angel investor who counts Hold Hodl as part of his his portfolio, the lack of KYC helps streamline the lending process.
“It’s how we used to do business before the banks made us jump through so many hoops and so much paperwork,” he said, speaking to the BTC Times.
Instead of digging out passports and recent utility bills, scanning them, and waiting for approval, he argues, users can just have a look at the offers and accept or reject. “This offers a great alternative to the existing projects for the people concerned about their privacy and for people that just want to do smaller amounts.”
But KYC isn’t just a nuisance or hindrance to privacy, says WhalePanda; the problem runs much deeper.
He explained that access to basic financial services can be completely cut off for people living under an authoritarian or restrictive rule. Peer-to-peer services help alleviate the issue by enabling unrestricted trade, removed from central control.
“These people aren’t criminals or don’t have bad intentions, they’re just people who happen to live in a country that’s on a subjective blacklist, and they’re just trying to survive and make a living,” WhalePanda continued.
Along with KYC, Keidun has decided to give fiat the boot as well. Instead, Lend leverages stablecoins, which Keidun believes add more value than fiat – primarily due to their peer-to-peer nature.
It’s this jettison of fiat, the absence of KYC, and Lend’s fixed interest rates that were most intriguing to WhalePanda:
With interest rates being at an all time low everywhere in the world, and with the rise in popularity and legitimacy of stablecoins, there is a huge potential market for this platform. Every other platform or service out there has a variable interest rate that can be changed at any given moment. Here you agree at the time of the start of the loan on a fixed interest rate that can’t be changed.
Lend isn’t the only Bitcoin lending platform out there. In fact, Bitcoin’s borrowing and lending ecosystem has been around far longer than the Ethereum-dominated DeFi sector would have everyone believe. The first peer-to-peer Bitcoin lending platform, BTCJam, popped up circa 2012—almost two years before Ethereum was even a glint in Vitalik Buterin’s eye.
BTCJam facilitated Bitcoin-denominated P2P loans globally, catering specifically to those without access to financial services and, akin to Lend, removed itself from the privacy-prohibitive KYC constraints. In the years since, other platforms have arisen, offering their own twist on Bitcoin finance.
One of the most popular among them is BlockFi, a crypto lending platform with over $1.5 billion in assets under its belt. In August, the company managed to land $50 million in funding. The round, led by the Anthony Pompliano-founded Morgan Creek Capital, along with participation from VC bigshots such as Winklevoss Capital, marks the firm’s third in the space of a year.
BlockFi acts similarly to a traditional bank, allowing customers to collateralize cryptocurrencies against a USD-denominated loan, but the similarities don’t end there. Much like traditional banks, BlockFi remains mired by centralization. In May, this manifested in a data breach. While BlockFi avoided any financial loss, the same couldn’t be said for customer KYC data—building a better case for decentralization.
While Lend’s P2P- and KYC-absent model goes some way to avoid a repeat of this, even Keidun admits that due to the platform’s centrally-held website, Lend isn’t truly decentralized.
“We have a website, which is obviously one of the risks – we’re not software,” Keidun explained candidly.
However, he reveals that decentralization is a work in progress, and talks are ongoing with developers to build a distributed platform for Lend in the future.