The current crypto market regime caters towards the speculative trading of cryptocurrency which is fundamentally due to the lack of high-quality economic output. Despite the lack of economic output, Cryptos has developed advanced payment and transaction use cases. These use cases are facilitated through the staking of a mechanism that returns a percentage of the amount when a block has been successfully added to the chain, thus Blockchain.
Although the staking of cryptocurrency is able to give a high range of staking returns for stablecoin typically in the range of 0%-19% APR, they are not stable enough to generate consistent returns (varied according to the total staking amount) as compared to PeerHive’s Decentralized Lending Contracts (DLC) of around 8-15% consistent across DLC’s term.
PeerHive answer
Bridging Businesses towards Cryptocurrency (Stablecoin)
By onboarding SMEs that met the Pre-Selection Compliance’s criteria, these businesses would act as the backbone of PeerHive as they are looking for finances to fund their growth or to finance their projects.
As a reward for the lender to provide loans for the borrower to fund their business and respective project financing, the borrower is required to pay interest (8.5%-11%) on the principal amount.
At the end of the loan term, borrowers are required to return the principal amount and the last interest payment to the lender, and then the Smart Contract expires together with releasing the collateral (held on a custodian escrow account) back to the borrower.
Overleveraging
If a party overleverages and is unable to manage the associated risks, it can lead to catastrophic consequences, including a portfolio-wide default and a failure to meet withdrawal requests from healthy clients at a centralized exchange (CEX).
Overcollateralization can further amplify these downside risks, as it involves borrowing assets to fund a trading position. This can increase the potential for losses if the value of the collateral falls, as the borrower may not have sufficient assets to cover the loan. It is important for lenders to carefully assess the risks and rewards of any investment and to ensure that they have a sound risk management strategy in place.
PeerHive answer
Sustainable Economic Output
Giving the crypto-community access to a sustainable economic output would shift the overleveraging risk away from the drastic movement of the crypto market. In an effort to add an additional layer of resiliency towards the crypto-economy.
Instead of holding volatile cryptocurrencies, it may be more beneficial to hold stablecoins that are pegged to a specific fiat currency. However, rather than holding these stablecoins, they could be placed into a Decentralized Lending Contract (DLC) that is backed by a financially strong and reputable business seeking funding for growth and projects. This can provide an additional layer of security and stability to the investment.
Diversification of risk away from the crypto market is crucial for the next step of general acceptance, as this would strengthen the resiliency of the entire crypto economy.
Liquidity Access
According to Coinmarketcap.com, the total market cap stands at $803 billion and the 24-hour transaction volume is $26.8 billion as of (20th Dec 2022). While the overall global Fixed Income market stands at USD 119 Trillion, which is almost 148x of the total crypto market capitalization.
The cryptocurrency market has grown significantly in recent years, with a large amount of liquidity available for investment. This pool of capital can potentially be used to fund projects and businesses, providing a source of stable passive income for lenders.
PeerHive answer
Peer-2-Peer DLC
Decentralized lending contracts (DLCs) can provide an alternative financing optionfor businesses by allowing them to borrow funds using digital or fiat assets as collateral. DLCs are built on smart contracts, which are self-executing contracts with the terms of the agreement written directly into lines of code. This can make the lending process more efficient, transparent, and secure.
DLCs also offer lenders the opportunity to earn returns on their investments by lending funds to businesses. By leveraging DLCs, businesses can potentially tap into a larger pool of capital and lender can potentially diversify their portfolio into the fixed-income market.
By lending funds through a decentralized lending contract (DLC), investors may be able to diversify their portfolio and potentially earn a stable return on their investment. DLCs allow investors to lend their digital assets to borrowers in exchange for interest payments. This can provide an alternative to market speculation and may offer a lower-risk product compared to actively trading cryptocurrencies.
