A Mexican lender is borrowing DeFi beyond crypto and into the broader financial market, providing $40 million in lines of credit to small businesses.
Decentralized finance, or DeFi, has been touted as a threat to traditional financial institutions that can be disintermediated by peer-to-peer lending platforms and automated exchanges without a central controlling authority.
However, in practice, DeFi lending has largely been a circular market, with borrowers using funds to invest in other DeFi platforms to fund crypto derivatives bets or mine interest rates. very high interest and proposed DeFi lending/borrowing project tokens.
See: PYMNTS DeFi Series: What is Yield Farming and Liquidity Mining?
On Thursday, delt.ai, a Mexican company that extends lines of credit based on corporate credit cards to small businesses, revealed that it was using a DeFi lending protocol to assess the creditworthiness of potential borrowers and provide lines. credit to customers.
The company has already awarded $40 million to companies like Therapifywhich says it offers app-based emotional support and therapy by certified mental health professionals.
“delt.ai really makes it easier and faster to send group bank transfers. Before, we were wasting more than four hours every Monday sending countless bank-to-bank transfers,” Terapify co-founder and CEO Juan Daniel Vélez said in a testimonial on the lender’s website. “Now we just upload an Excel document and they’re processed in minutes.”
To fund the venture, delt.ai is working with the TrueFi lending marketplace, created by stablecoin issuer TrustToken (TrueUSD).
TrueFi is something rare in the DeFi world: a collateralless lending protocol.
Most DeFi loans require cryptocurrency collateral of significantly greater value than the loan: putting $150 of ether (ETH) and receiving $100 of stablecoins is a fairly common example. If the value of ether drops too much, the collateral will be liquidated – at the market low – to repay the lenders.
Backed by the a16z arm of venture capital giant Andreessen Horowitz, TrustToken’s TrueFi lending marketplace does things in a much more traditional way, but with a big asterisk.
However, TrueFi does not cater to small retail borrowers. It is described as a “lending app store” that allows asset managers to launch new lending platforms for corporate borrowers.
Its clients are “largely individuals, pseudo-anonymous individuals and family offices in DeFi, participating in a range of investment sizes,” Raphael Cosman, CEO of TrustToken. Recount Cointelegraph Thursday (February 3). Its borrowers tend to be crypto hedge funds, venture capital-backed start-ups and soon, Cosman said, traditional financial institutions.
With crypto lending protocols offering interest rates an order of magnitude higher than traditional banking products like savings accounts, the “best returns are no longer in traditional markets, like stocks or bonds. , but on DeFi,” Cosman said.
While investors must be sure to understand the market and its risks, “capital will always seek the best risk-adjusted returns,” he said. “This promise of lucrative returns is the greatest force pulling traditional blockchain finance, and we expect it to continue.”
This also applies to regulators, Cosman noted, referring to Securities and Exchange Commission Chairman Gary Gensler’s characterization of crypto as the “Wild West” of finance.
Also see: SEC campaign against crypto lending extends beyond Coinbase
Working through TrueFi, delt.ai is able to offer lines of credit based on revenue and risk assessment, with bulk SPEI bank transfer functionality – up to 36,000 per hour – billing cycles 45 days and a Mastercard branded corporate credit card.
The way TrueFi makes its credit decisions is not through a rating agency but by using another DeFi product: prediction markets. When a borrower applies for a loan, it is routed through a decision marketplace where holders of TrueFi’s TRU token evaluate the application and vote yes or no. Although the lender or lending pool does not have to follow this recommendation, it is usually the decision-making process. When the loan is paid off, yes the voters get a bonus in TRU tokens just like the lenders.
“I used a ‘traditional’ bank for three years and repeatedly they told me I was not entitled to a company card. delt.ai did in two weeks what Santander couldn’t do in three years,” Ana Ramos, CEO of Gigstack, a Mexican provider of financial management software for small businesses and freelancers, told the site. delt.ai website. “Thanks to delt.ai, I no longer use my personal credit card for business expenses.”