CoinLoan Key Facts:
- you can set up your own loan offer and define the terms
- choose the interest rate, loan duration and loan amount yourself
- the borrower needs to provide crypto currency as collateral
- the maximum loan to value (loan to collateral) is 70%
- if the borrower doesn’t pay back the loan in time, CoinLoan will sell part of the collateral to pay back the investor
- if the collateral drops in value and loan to value increases, CoinLoan will sell the collateral to pay back the investor
updated May 13th 2019
CoinLoan.io is a rather new player in the p2p lending world. This platform combines two of the major trends in the fintech and digital asset sector: crypto currencies and crowdlending. Like many other fintech companies, CoinLoan is based in Tallinn, Estonia and started its activities in 2018. As a European company it is fully licensed under EU legislation and meets the EU standards to prevent money laundering.
How does CoinLoan bring together crowdlending and crypto currencies?
The novelty that CoinLoan brings into p2p lending are loans which are secured by a collateral pledged in crypto currency. In fact, the loans are over-collateralized to protect the lender (the investor) but also the borrower from loan default. The maximum loan-to-value (LTV; ratio between loan amount and collateral) is 70%.
What does this mean?
Let’s say the borrower wants to borrow 700€ from a lender on the CoinLoan marketplace. As collateral, the borrower has to pledge at least 1000€ worth of cryptocurrency which he needs to transfer to CoinLoan. This results in a LTV of 70% (the loan amount is 70% of the collateral value). This collateral is then controlled by CoinLoan until the borrower has fully repaid the loan to the lender. If the borrower does not repay the loan in time, CoinLoan will sell the crypto collateral to pay back the lender. Also, if the collateral decreases in value (which can easily happen due to the volatility of crypto currencies), CoinLoan will sell the collateral to pay back the lender. In the latter case, this protection of the investor/lender kicks in at the latest when the LTV has increased to 90% (the higher the interest rate of the loan, the lower this LTV threshold). Therefore, the investor is protected against the volatility of the crypto currency value and also against the borrower’s inability to pay back the loan.
The obvious question at this point is: why would the borrower take out a loan instead of just selling some crypto currency to get the FIAT money (Euro, USD, …) that he needs? Well, most people consider crypto currencies as a form of investment and expect their value to rise. As a consequence, they don’t want to sell any because they would effectively lose money if the crypto value increases afterwards. It then makes more sense to take out a loan and to keep the crypto investment at the same time. This works in favor of the borrower as long as the increase in crypto value is higher than the interest rate that he/she needs to pay for the loan.
Example: a borrower takes a loan worth 700€ and pledges 1000€ worth of Bitcoin as collateral. Then the Bitcoin value starts to drop. When the Bitcoin collateral is only worth 778€ (LTV of 90%), CoinLoan will sell the collateral to pay back the lender (principal amount plus interest of e.g. 40€, so 740€ in total). The remaining 38€ worth of Bitcoin are returned to the borrower. In this case it would have been much better for the lender to just sell 700€ worth of Bitcoin in the first place instead of taking a loan from CoinLoan. But since people who own crypto currencies are speculating that they will rise in value (that’s almost the only reason why people own cryptos) such a crypto-backed loan from CoinLoan might seem attractive to them.
How does this work for an investor/lender?
As an investor, you can define all the terms of the loan you want to issue. You can set the loan currency (EUR, USD, RUB or stable coins like TUSD), the total loan volume, the size of a loan share, the interest rate, the loan duration and the currency of the crypto collateral that you are willing to accept. This loan is then listed on the CoinLoan marketplace. If a borrower accepts your conditions, he or she can take all or part of your loan. After such a loan match has taken place, CoinLoan will automatically monitor the repayments and the value of the collateral. As soon as one of the situations outlined in the previous paragraph arises, CoinLoan will start selling the collateral to pay back the investor.
As long as the LTV remains stable or even decreases (in case the crypto collateral rises in value) the loan will take its due course and the borrower will incrementally pay back the loan according to the loan duration. For loans with up to one month runtime there will be one single repayment at the end of the loan term. For loan durations of two months or more, there will be monthly repayments of partial loan principal and interest.
Which return on investment can I expect?
I think this will fluctuate and depend on the available loan offers from investors and loan requests from borrowers. It’s a supply and demand market situation. Loan offers and requests are visible in the CoinLoan marketplace but once a loan is matched it is not visible any more. Hence, it’s not straightforward to see which loan offers are successful. At the time of writing, the lowest interest rate loan offer on the market was 15% for EUR loans. This means that either there are no loans offered below 15% or they all have been matched already. I placed a 14% loan offer as a test and it was matched by a borrower within a few hours. So I think that it should be possible to get an average of 13% to 14% return on investment.
It all depends on the balance between loan offers and loan requests; pretty much a free market economy. CoinLoan will need a sufficient number of active investors and a high number of borrowers to accommodate large investment volumes. Let’s see where this will go. Their support team told me that around 40 people per day are registering an account which means about 1200 per month. If the platform continues to grow at this pace it could turn into a very interesting investment opportunity indeed.
How do I get started?
Same procedure as on any p2p investment platform: you register your account with an email address and password. Afterwards you need to verify your identity by providing photos of your ID and yourself holding the ID next to your face. CoinLoan also offers two factor authentication (2FA; via Google Authenticator) to further protect your account.
Deposits in FIAT currencies (EUR, USD, RUB) can be done via SEPA bank transfer for free or via other service providers for a small fee. SEPA withdrawals currently cost a 5€ fee (when I did a test withdrawal this was however not charged for some reason) but CoinLoan is working on getting a better deal with their bank in order to remove this fee. Crypto currency deposits are done by transfer from your wallet to your CoinLoan wallet. There is also the option to exchange cryptos directly on CoinLoan but I found the exchange rates to be quite bad. This is better done elsewhere.
Under the tab My Wallet you can see the current balance for all supported currencies.
Creating a loan offer
As mentioned above, you define the terms of your loan offer yourself, see the screen shot below. The summary on the right hand side shows you how much profit you’ll make from this loan offer. All your loan offers (open loans, active loans, and canceled loans) are listed under the tab My Loans.
After setting up your loan you just need to wait until a borrower matches your offer. When that happens, your loan gets the status Active Lent Loan and by clicking on View Details you can see the payback schedule as well as the original and current collateral value. As you can see in the screen shot, the LTV has decreased in this case because the ETH/EUR exchange rate has increased (the Ethereum collateral has increased in value).
I successfully placed a 500€ loan with 14% interest rate and will deposit some more cash soon to see if I can easily place such a loan again. CoinLoan just got started and time will tell which return on investment is possible and if this concept of crypto-backed loans is at all attractive for investors and borrowers. To me this sounds quite interesting and I’ll keep following the progress of CoinLoan closely.
I you’d like to give CoinLoan a try as well and to support this blog you can register your account through this link.