The Banks Have Gone Mad and the System is Broken

The rise of peer to peer crowd-lending, tokenization and the slow death of bank Ray Dalio has summed it up pretty well in his latest post — “ ” — and in this . The World has gone mad and the system is broken interview with CNBC There is clearly a combination of opportunistic reasons, greed, quest for power and cronyism as to why the economics behind the narrative — despite its historical failure and well documented criticism — was sold to the masses by liberal lobbies and special interest groups, in bed with the politicians, during the last decades. bullshit trickle down This causes today not only major economical and financial imbalances, asset price distortions and a dramatic increase in income inequality not seen since the roaring ´20s, but also — more dangerously — a social breakdown which Dalio describes as, literally, a sliding towards a social/civil “war like environment”. Examples of civil unrest around the world are plenty to see, from the French , to Chileans and Lebanese people just to name the latest. are a of the EU banking crises in Iceland, Greece and Cyprus in the last decade. yellow-vests The recent bank runs in Lebanon déjà vu But plenty has already been written on that topic. I wish rather to focus on how — from bottom up (and not vice versa) — the market economy finds new solutions and creates new opportunities for investors to finance the production of goods and services without the economic aberrations of negative interest rates and outside the legacy banking system. The time value of money and the rise of p2p lending One of the capitalistic market fundaments is that the capital must be rewarded. There must be an incentive to save and invest your savings in the economy. This is achieved through market based interest rates that are paid to someone to lend his money. The weirdness of zero/negative rates — which is not by the way the result of market dynamics but rather the arbitrary and fraudulent manipulation of central banks — has torn apart the basic principle that “ ” (i.e. one unit of money today is worth more than one unit of money tomorrow). money has time value But what is likely missed is that — while such financial follies continue unabated — the real economy continues to work with the usual dynamics of a healthy capitalistic system where positive interest rates are determined by market participants in order to lend money to productive businesses. So far, entrepreneurs without a good enough credit standing, start-ups, SMEs or people not wealthy enough to post a collateral guarantee, had a very hard time financing their businesses or consumptions with the banks, although the financial system has been awash with the liquidity injected by central bankers globally. So, when banks stop doing what they are supposed to do (lend money) and people are not rewarded with adequate interest rates to keep their savings with the banks, they take their money out of the banks and start lending it to other people and businesses which cannot be otherwise financed by the legacy banking system. Call this or or , whatever pleases you. alternative non-bank lending peer to peer lending crowdlending Nowadays fintech is enabling the growth of a whole new breed of peer to peer lending platforms where lenders and businesses meet and determine market based interest rates to reward capital deployment. Some figures and data will give you a much better idea of what is happening unnoticed by many. A US$ trillion market The equity crowdfunding market is more known than the peer to peer lending market (crowdlending) and it has also a longer history. According to this global market was worth approx. US$ 7 billion in 2019. Less than . According to . Still nothing to be overly excited about. this research by Statista.com peanuts fundly.com, the equity crowdfunding industry is projected to grow to US$ 300 billion by 2025 Now let´s look at what the peer to peer lending sector is doing instead. it was worth US$ 9 billion at its very inception in 2014, the next year was already worth US$ 64 billion and . According to Statista.com it is projected to grow to a US$ 1 trillion industry by 2025. Now, that´s not peanuts estimates the current worth of the peer to peer US lending industry at CHF 38,7 billion and the Chinese market ten times that with CHF 345 billion. This 2019 PWC research The crowdlending market dwarfs the equity crowdfunding and its growth will very likely exceed the forecasted US$ 1 trillion mark. Source: PWC.ch More in this Business Insider report “ ”. A look at the non-bank and alternative lending industry in 2019 Explosive growth The following chart is worth more than words. is a Latvian Fintech company which was launched in 2015 to become a “ ”. Through their platform small investors can lend money to almost any sector of the real economy. You name it, agriculture, forestry, car loans, consumer loans, invoice financing, real estate mortgage loans etc. Mintos global marketplace for peer to peer loans Source: Mintos.com According to their data small investors had lent through their platform almost € 1 billion up to August 2018. Then, in the following 15 months — thanks to the new wave of zero/negative interest rates — the investments have more than tripled to € 3.8 billion. And this is not the only one. The likes of or or just to name a few, they all have their own market focus and all of them claim double or triple digit growth. crowdestor ablrate investly More importantly, looking at the published loan performances, I was surprised to see that . the disclosed default risk was in average quite low between 0,5% and 1,3% of the transacted volume, while the loan performance was quite high with an average interest rate return for lenders of approx. 11,9%** Source: Mintos.com This is the peoples’ response to the bankers’ fraudulent manipulations of interest rates, just like bitcoin is the response to the continued debasement of fiat currencies. While the banks are slowly - but inexorably - being deprived of their traditional social role as lenders, the people are taking control of their savings back in their hands. And before we know it . — a UK based fintech bank — is now opening crypto accounts next to traditional fiat accounts and also accepts crypto funds. those platforms will accept cryptocurrencies as it is already happening. They will operate through channels parallel to the legacy banking system, therefore reducing transaction costs and the transfer time of funds by using stablecoins and cryptocurrencies instead of fiat Revolut The Tokenization of p2p Loan Portfolios The next step will be to tokenize entire loan portfolios, so that a global, frictionless, secondary market for such loans will be born. : The tokenization of such loan portfolios will bring a number of important advantages (i) the within the token via smart contracts; programmability of the loan terms (ii) such as interest payments and principal reimbursement, as well as the deduction for the platform fees (some functions cannot be fully automated since the borrower must always initiate payments); the semi-automatic and instantaneous settlement and execution of the loan terms (iii) the and the rights to the underlying loan in the secondary markets; frictionless transfer of the token (iv) the possibility to , provided the token standard is compatible with such markets. This will also enhance the liquidity which is now limited to the bid and offer of that single platform, totally lacking interoperability. This also solves the current problem that if the platform becomes insolvent the whole secondary market (which is directly dependent on the platform) comes to a halt. Even if legally speaking the lender´s rights to the underlying loan are not impacted by an insolvency of the platform, without the platform performing its key intermediary role there will always be inevitable disruptions for the lenders; trade the token in several secondary markets (v) the of the private keys to the tokens in your personal wallet and therefore the reduction of the counterparty risk which will be then limited to the intrinsic risk of default of the borrower. Currently some platforms expressly claim that client accounts are kept segregated and that in case of insolvency of the platform such funds cannot be apprehended by the receivership; self-custody (vi) a currently needed and a reduction of the intermediary functions performed by the platform. Though some key functions, which cannot be automated, will still be performed by the platform such as: reduction of the paperwork - repossess collateral assets or enforce loan guarantees (personal or banking) or mortgages - chase the borrower for late payments/default - initiate debt recovery procedures in case of default. Conclusions For nobody, as far as I am aware, is tokenizing peer to peer loan portfolios yet, I have asked Giuseppe Morlino — founder of the tokenization start-up — why is it so: “ .” Stonize The finance sector has lagged behind in terms of digitization and this is probably due to the high level of centralization that has characterised it, at least so far. The reason why tokenization is a game changer in finance is because it democratizes access to liquidity and investment opportunities . In other words, the true value of decentralization in finance is democratization: DeFi (Decentralised Finance) implies DeFi (Democratised Finance). And peer to peer lending is just one of the best possible use cases. We are carefully looking at that sector and we are already discussing with Loan Originators to do just that. Our Stonize T3 Protocol (Trusted Token Transfer) provides a seamless compliance solution enforcing the rules governing the digital security on issuance and secondary trades and it is agnostic. Currently, it is compatible with the Ethereum, Stellar and Algorand ecosystems and it is ready to leverage more advanced decentralised permissionless blockchains, as they will emerge. This is our approach to contribute to the rise of DeFi, the Democratised Finance in the future and peer to peer lending in particular . If — this means that we can reasonably expect that few of todays´ traditional banks will survive this revolution. . The commercial banking model as we know it is dying before our eyes and the bankers do not see it only 7,6% of the banking CIOs agree with Morlino´s statement above — which considers blockchain disruptive for the sector The next 5 to 10 years will be a “ Blockbuster moment ” for the banking industry worldwide ********************************************************* ** Read carefully my disclaimers below. Do your own due-diligence before investing your money into any of the above mentioned platforms. Importantly, should you decide to lend your money, spread your investment across the highest possible number of loans to reduce the adverse impact of any possible default. Read carefully the terms and conditions for the loans and consider carefully the counterparty risks, default risks and any other risks represented by the proponent of the investment. #blockchain #bianconiandrea #crypto #thinkblocktank #bitcoin #fintech #peertopeerlending #crowdfunding #crowdlending *************************************************************** Legal Disclaimer : The website and the information contained herein is for general guidance only and it does not constitute legal advice. As such, it should not be used as a substitute for consultation with lawyers on specific issues. All information in this paper is provided “as is”, with no guarantee of completeness, accuracy, timeliness or warranty of any kind, express or implied. 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