Hey you! Wanna be a lab rat?
There’s a reason the term “lab rat” carries less-than-positive connotations. Nobody wants to be the test case for a trial that could carry negative consequences. So it’s no surprise that lenders are hesitant to remodel their operations with blockchain — profitable returns aren’t guaranteed.
But the wait-and-see approach to blockchain in lending only stalls innovation. It’s not only a barrier to the industry’s rising tide, but to the success of individual lenders as well. Though blockchain automation could streamline processes and save costs, banks are skeptical.
Risk aversion is critical in smart lending. But a conservative mentality has proven harmful when such skepticism is applied to new technology. The simple truth is that people still don’t know much about this technology, so they’re not in a hurry to change the way they’ve always done things.
It takes significant time and effort just to understand blockchain technology. It takes even more to understand how it can benefit lenders, and then create lending-specific platforms and services for them. Banks aren’t typically in the business of spending money they don’t have to, and this attitude is slowing blockchain adoption.
Somebody always stands to lose from innovation, and potential losers aren’t eager to see blockchain come to lending.
1. Antoni Trenchev, Co-founder of Nexo
“The biggest challenge is scaling the enterprise. This is true for a lot of successful companies.
We need more liquidity to meet the loan demand, that’s why we (Nexo) started paying out interest on stablecoins and are working on acquiring commercial banking capabilities. This is beyond exciting for us and the crypto community.”
2. Blake Cohen, Co-founder of SALT Lending
“The primary challenge to blockchain adoption in lending is education. The number of people who have an awareness of how blockchain technology can work in the financial sector is still relatively small, but the number of people who truly understand it is even smaller.
There are still a lot of questions regarding how this emerging technology will manifest itself, not only in the lending space but within other areas of financial services. In order for potential customers to accept this type of credit, they must first be educated not only about how it works, but how it can benefit them.”
3. Alex Faliushin, CEO and Co-founder of CoinLoan
“The inflexibility of the traditional banking system remains a major challenge. It still struggles to accept and serve lending and financial companies associated with the blockchain and cryptocurrencies. It seems that the old-fashioned banks are afraid of competition, realizing the advantages of the blockchain.”
4. Steve Swain, CEO and Founder of Lendingblock
“Blockchain technology is still relatively young in terms of its application for daily use and is not always user friendly in terms of the systems and the tools that are needed to perform specific operations.
Furthermore, the market is highly fragmented, and for the individual or institutional borrower or lender this can pose challenging in terms of understanding the landscape. That is, how to operate in a way that meets their needs more effectively than the traditional markets.”
5. Anil Awasthi, VP, Global Head of Retail Banking, Virtusa
“The lending ecosystem today has a multitude of stakeholders that play a significant role in the loan origination process. For successful adoption of blockchain, these stakeholders need to embrace the technology and be willing to be on common distributed ledger(s).
In a nutshell, the #1 challenge is the readiness of ecosystem players for blockchain adoption.”
6. Darshan Bathija, CEO and Founder of Bank of Hodlers
“The biggest challenge that blockchain adoption can face in the realm of lending is with regards to the cryptocurrency market’s volatility. The market saw a steady and continuous decline in the value of all cryptocurrencies in 2018, after the bull run of 2017.
If a lender offers his or her cryptocurrency as collateral for a loan, and the value of that cryptocurrency falls significantly within a short while, the user tends to lose out on their crypto assets, which are automatically liquidated. This prevents the user from gaining the future upside if the market starts displaying bullish trends.”
7. Zac Prince, CEO of BlockFi
“Awareness and product market fit [are two challenges]. Some enterprise blockchain solutions and smart contract-based lending platforms have thought about it from a tech-first point of view instead of an end user-first point of view.”
8. Joe Kelly, CEO and Co-founder of Unchained Capital, Inc
“It’s a young industry, so it’s mostly an awareness problem. As the market cap and daily trading volumes grow, there will be a bigger market.”
9. Martin Ploom, CEO and Co-founder of SmartCredit.io
“We are on the beginning of the adoption S-Curve, with all the standard benefits (little competition) and standard challenges (low adoption) of being at the beginning of the S-Curve.”
10. Vitaly Bahachuk, Co-founder of Bloqboard
“Finding the demand side (borrowers) for the abundance of assets already supplied [is a challenge]. The main use case for borrowers (traders) is margin trading. Unlike centralized exchanges, there is still friction for traders to acquire and immediately trade assets from blockchain lending protocols.”
11. Anzhelika Osmanova, CEO of Lendonomy
“The main obstacle for widespread adoption of blockchain in lending is immature legislation. Laws are simply not there yet.
Traditional lending is a highly regulated business that needs to comply with a set of rules to ensure the safety of lenders and borrowers. When it comes to blockchain, many new players use [lack of regulatory clarity] to their advantage, making the legislative bodies even more scared and skeptical of blockchain than they would have been should all lending fintechs voluntarily comply with the rules that exist for non-blockchain based lending institutions.”
12. Brian Nolan, Co-founder of Finteum
“Solutions that leverage blockchain are still viewed with skepticism. The in-production bottom-line benefits haven't yet been proven.”
13. Ed Handschuh, Co-Founder and CEO, 1Konto
“Banks’ aversion to risk is currently inhibiting the adoption of blockchain technology in lending. This is to be expected, as banks must be 100 percent comfortable with any and all processes due to the trust required in the banking system.
Blockchain will limit the amount of trust required, which is a benefit, but we are years away from the open, decentralized, trustless system many envision. Mortgages will be banks’ first step into blockchain and they’re growing more comfortable in this space as each day passes”
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