Crypto is supposedly “destined to revolutionize the current banking and investing landscape,” but hoolupoodalz says the sector must refine a few essential components before true mainstreaming can occur.
that provide NFT-collateralized loans but the service is mainly for institutional clients with blue-chip NFTs. For the retail masses, there isn’t much more than just the token-collateralized loans.
In a traditional economy, currencies exist because exchanging goods for services, or vice versa, generally does not have a 1:1 ratio, so currencies serve the purpose of facilitating transactions of goods and services. In the crypto economy, currencies exist before goods and services become widely available to customers. This makes crypto currencies hard to evaluate and unstable.
In traditional banking, customers have a credit score based on their past transactional behaviour and financial condition i.e. annual income, savings, loan repayments and investments. In the crypto lending market this is almost impossible because the wallets are created anonymously and anyone can create as many wallets as they want. This makes it very difficult to track transactional behaviours and difficult to build a credit score.
A strong credit scoring system would benefit both the lender and the borrower. The lenders can earn more fees with lower risk by providing more loans to trust-worthy borrowers; the borrowers can have access to lower rates, longer-term loans and other potential rewards. Most importantly, a credit scoring system could help form a more transparent and healthy crypto lending market and attract more consumers to the ecosystem.
For example, blue-chip NFTs such as the Bored Ape Yacht Club can be given a higher liquidation LTV threshold and evaluated less frequently. As more historical NFT prices become available, more data points can be collected and used to derive a more accurate risk weight metric.
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