Back when physical banking was king, you had to go to the bank to get credit. Through digitization and decentralization, financing can now come to you within minutes. The transformation in access to finance has been greatly enhanced by blockchain platforms that thrive on empowering their communities for growth.
Blockchain platforms have unique aspects that open up access to finance to millions of individuals and small and medium enterprises (SMEs). These aspects have allowed blockchain lending to grow even though traditional finance had the incumbency advantage. Let’s explore some of these unique features.
Community Centric-Platforms
Most blockchain platforms seek to implement a community governance structure. Notable cryptocurrencies rely on this community to secure the network and ensure it is decentralized. Blockchain platforms providing swap, trading, or lending services have lesser degrees of decentralization but seek to create a vibrant community.
Creating a community means that access to finance takes a more community-centric approach. Traditional banks usually have a top-down structure, where the bank dictates the terms, and users contend with them.
Crypto lending platforms make assessments based on the collateral and efficient assessments. It is not skewed towards those in the formal sector, as is standard for banks and traditional lending institutions. Lending platforms like Credefi have emerged to leverage a community-centric approach that enhances borrowing opportunities, particularly for SMEs. Community involvement also promotes transparency and provides the inclusivity needed for sustainable growth.
This opportunity is part of a broader trend of community-centric blockchain finance. Some decentralized exchange platforms have automated matchmakers and liquidity pools for lending. They are still a work in progress to catch up with the efficiency of more centralized lenders but are indicative of the possibilities brought about by blockchain finance.
The Blockchain Promotes Financial Equality
One of the biggest issues with traditional finance was the rigidity of lending policies. The financing possibilities are skewed towards those in the formal sector with white-collar jobs. Fintech and blockchain platforms have brought about a paradigm shift by using digital assessment for lending decisions. This possibility has increased the pool of potential lending beneficiaries by millions.
For blockchain platforms, it is possible to obtain financing purely from collateral provided and innovative credit scoring. Such lending is dynamic and improves the chances of small and medium enterprises, who would otherwise have unsuitable lending options from traditional banking institutions.
Technology Transforms Lending Analysis
The days of manual assessment of a borrower’s credit score are over. Data analytics has transformed risk assessment. These tools have transformed how fast credit decisions happen. Crucially, data analytics makes the assessment process more transparent and objective. It is not down to looking at someone in a suit and tie and having worked in the formal sector as traditional lending seemed.
Instead, there is a much more efficient tool to make rapid assessments. The use of technology for analysis means that businesses can provide basic data and get access to financing that would require a tonne of paperwork from a bank.
Conclusion
The transformation brought by blockchain finance is still unfolding. Emerging crypto lending platforms are trailblazers for a new era of finance. Crypto lending platforms are more accountable to their users and are more likely to be transparent, accessible, and efficient in their services. These qualities are positive for small business owners and individuals who would otherwise get locked out or obtain inadequate financing from traditional banks
Accordingly, blockchain platforms shall be an increasingly vital component of the financial sector moving forward. This trend will be beneficial for individual and small business owners who most need the financing.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
