“Banking is necessary, banks are not,” Bill Gates
Keeping your money in the bank is a losing proposition. Interest rates are at all-time historical lows and Central Banks around the world are pushing them lower every year. For savers, a savings account used to be a good option to earn a return on their money, but with average savings rates at 1.6% now, it can’t even keep up with inflation. You are essentially paying your bank to hold your money. For now, the Central Banks are committed to "whatever it takes" to prop up our debt fueled economy.
Conversely, consumer credit borrowing rates are at all time-highs. Financial institutions push lending rates as high as possible to extract every ounce of interest through credit cards, pay day loans and other lending products. Like a junkie, Americans are addicted to the cheap credit flooding the market.
This gap between the rates banks borrow at and what the lend out is where they profit. And banks and consumer credit lenders have been making a killing. The stock price of Visa, leader in credit card industry, is continuously pushing to new dizzying heights. Every time any person around the world swipes a Visa card, they pay nearly 2% of the purchase price. Some merchants pay even more. Even debit card purchases charge as much as $0.21 per swipe.
So if there is such demand for credit, why can't consumers access these incredible profits?
There is a better option, however, with secured peer-to-peer lending.
What is Peer-to-Peer Lending?
Peer-to-Peer lending is enables individuals to access loans from other people, removing the middleman. The first P2P platform Zopa was launched in the United Kingdom in 2005 and the industry quickly grew to multi-billion dollar volumes in a few years. Some of the largest P2P lenders are Prosper, Lending Club, Peerform, Upstart, and StreetShares.
P2P lending platforms connect borrowers directly to investors. The aformentioned sites pre-screen borrowers and then present them with a rate, if they accept, then a counter-offer is given to lenders to see if a match can be made. P2P platforms typically control the rates and terms of the transaction, as well as determining the creditworthiness of the borrower.
P2P lending is not all glitz and high interest returns. Many investors have lost their entire pool of capital from company failures and bankruptcies. In 2017, the Cleveland Federal Reserve surmised that P2P consumer lending was beginning to resemble the subprime mortgage crisis.
In China, P2P loans used to be a multi-billion dollar industry serving a large portion of the population. However, a number of high-profile pyramid schemes and disappearing executives forced the government to outright ban all P2P loans starting in 2021.
Bitcoin fixes this
Enter cryptocurrencies, digital commodities for the modern age.
Bitcoin's value is inherent to itself. It's not dependent on any outside source for its value and is a fully trustless asset secured by millions of computers around the world. The same is true for all other cryptocurrencies. This gives crypto some special properties for P2P lending unlike its cash counterparts.
A P2P loan for crypto is similar to taking a mortgage out on your house. Your house is an asset. It has a market determined value which can rise and fall. If you took a loan against the house, a bank would assess its value, then issue you a loan worth a percentage of the total value. This is known as Loan-to-Value ratio (LTV) and its an important part of crypto loans.
Bitcoin, for example, also has a market determined value. It can be deposited with P2P company and a loan can be taken against it. Typical maximum LTV ratios are 75%. If the price drops significantly, the loan becomes under collateralized and the P2P company liquidates the Bitcoin to protect the capital lent by the investor.
In Steps Constant
Constant was launched in January 2019 by an international group of developers with the goal of building a stablecoin. The token (designated CONST) was originally designed to be pegged to the US dollar and allow for near free, international transfers.
But after seeing the limitations of their token as just a payment vehicle, Constant pivoted towards P2P lending secured by digital asset collateral. The new service was launched in May 2019 and since then they have done millions in dollars in loans.
Constant's product line can be broken down into three parts: Flex & Prime Trust, lending and borrowing.
Flex & Prime Trust
Flex is a deposit account that earns interest by lending into Compound Finance's liquidity pools. All deposits made into Constant are by default added to Flex. All deposits to Constant are converted to its in-house stablecoin CONST.
Users get all of the benefits of lending into Compound Finance, but their deposit capital is held by Prime Trust, a licensed, insured custodian. I'm a big proponent of Compound and their cTokens, which compounds every second and can be withdrawn at anytime. Constant offers these same features, but they arbitrage a small portion of the interest by offering a lower rate than what is available through Compound.
If you do not want the exposure to compound, there is an option to disable Flex. All deposits not held in a Flex account are held by Prime Trust, a qualified custodian. The Constant Foundation, issuer of CONST, never is in control of customer funds. Thus, under no circumstances can Constant steal of abscond user funds.
Prime Trust is a chartered, regulated trust company that is overseen by the Nevada Financial Institutions Division. As an accredited and regulated financial institution, Prime Trust is Federal Deposit Insurance Corporation (FDIC) insured to $130,000,000.
After depositing money into Constant and completing several loans, I can say that it is incredibly easy to use as an investor.
Here's how awesome Constant is... All withdrawals and deposits are free. They eat the costs the banks charge to encourage user growth.
Customers can transfer funds using ACH or Zelle, for instant deposits. I use Zelle since I have an American account and my balance updated in under 15 minutes. No other crypto lending platform offers fiat on-ramps and this alone makes Constant worth using.
After depositing funds, a loan offer can be created in just a few clicks. All a user must do is choose how much they want to loan, the interest rate and the length of term for the loan. Minimum loan terms are $50 and 30 days, with terms of up to 18 months. Upon submitting the loan offer, Constant adds it to their order book until a match is found. My loan was matched in a few minutes, but it can take up to 24 hours.
When a match is found, funds are transferred from the escrow to the borrowers account. Lenders earn interest from the moment the loan starts. At the end of the loan, the borrower repays the loan, plus interest. Lenders can then decide if they want to reinvest or withdraw. An auto-reinvest option can be enabled to continue growing your capital.
There are no limits on how much you can loan, nor are there any fees for lending.
Constant's crypto loan markets gives owners a way to borrow against their collateral quickly and without any credit checks.
Similar to lending, borrowers submit the amount, interest rate and term. When a match is found, funds are transferred to them and they start paying interest immediately. All collateral deposits are held by BitGo Trust Company, a qualified custodian focused exclusively on digital assets and insured for $100 million USD. Over 100+ coins and tokens are supported by Constant through BitGo.
Borrowers pay a 1% matching fee on all loans. If the loan is repaid early, they pay 50% interest for the remaining term before 75% of the loan term has elapsed. If more than 75% has elapsed, 100% of the interest is repaid. For late repayment, 10% of the total interest due is charged if the loan is repaid within 24-72 hours after the deadline.
All loans must maintain a 66% LTV ratio (150% overcollateralization). If a borrower wants to take a loan of $1,000 USD, they must first deposit $1,500 into their Constant account. If the value of the collateral falls to 110% of the loans value plus interest to date, it will automatically be liquidated and returned to the lender.
Constant Pro - Custom Loan Market
One of the key features of constant is their open market for secured loans. Constant was originally designed to be a decentralized app running on Ethereum for secured loans. They pivoted towards providing a fiat onramp, but the original idea lives on in Pro.
Borrowers and Lenders create custom loan orders and add liquidity to the order books. Counterparties decide if the terms meet their needs and then "take" the loan offer. It's a dual auction for loans, something I've never seen before.
What's cool about Pro mode is all trade history for the exchange is displayed and can be tracked. Transparency is a key part of Constant's business model and its on display for everyone to see. When this article was being written 29 orders for more than $20,000 in loan volume had taken place in the last 6 hours.
The Incognito Network is a privacy based layer-2 sidechain for creation and trade of digital asset tokens. Incognito uses Zero-Knowledge Proofs and cross-chain bridges to obfuscate transactions. Constant and Incognito share the same founder and both development teams are based in Vietnam.
With incognito, crypto users can create a collateral-backed 1:1 representation on Incognito's blockchain. For ETH users, the token is sent and locked in a smart contract and a new pETH token is issued on Incognito. When the user wants to reacquire their ETH, they simply burn their pETH and ETH is unlocked from the smart contract.
“We want to be the positive change happening the crypto space,” said Zon Chu, Constant’s CEO. “Privacy rights are under attack in the US and elsewhere and it’s time we stood up for our data. If we can help build a network that gives people control over what they share with the world, perhaps we can spur adoption, too.”
Constant offers two great options for Incognito users. First, they can stake Incognitos native token PRV and then borrow against it, offering returns on collateral while loaned. Second, while not openly announced on their website, Constant will exchange any amount of fiat or crypto into PRV for no extra cost. All that must be done is select PRV when submitting a withdrawal.
Constant recently introduced membership rewards to users who transact large volumes on their platform. The three tiers are Gold, Platinum and Diamond. Each tier provides greater rewards such as, cashback, instant deposits and withdrawals, and discounted interest rates.
To qualify for the rewards program, more than $25,000 must be invested or borrowed in a 180 day period. Constant's membership is based on transaction volume. The easiest way to hit diamond level would be to lend $16,700, 6 times on 30 day terms. This would barely get you over the line and give you the perks of diamond membership.
If you want to support this website, please follow any of the links to participate in the Constant referral program. For each person that signs up with this link, I will earn up to 10% of your interest on your investment earnings and 0.1% on your loan volume.
So if you deposit $10,000 and earn 8% APR, your total interest return would be $800 and I would receive $40 in addition.
Or if you were to borrow $20,000 worth of Bitcoin to ride the next bull run post-halving, I would receive $20.
Referral earnings are only given during the first year.
Constant supports more than 60 coins and tokens on its platform:
TOMO, BTC, ENJ, ETH, ELF, BEAM, REP, BNT, BND, BAT, BNB, BTT, CELR, CVC, MANA, DCR, DGX, DGD, ETC, ENG, FTM (ERC20/BEP2), FET, GTO, GNT, ONE, HOT, HT, ICX, IOST, MIOTA, IOTX, KCS, KNC, LRC, MCO, MATIC, MTL, MITH, MTA, NANO, NEO, NULS, NAS, OKB, OMG, ONT, PPT, POWR, NPXS, QKC, REN, XRP, XNT, XLM, STORJ, TOMO, XTZ, ZRX, USDT, VET, WTC, WAN, XZC.
I've really enjoyed learning about and investing with Constant. I've completed three 30-day loans so far and have earned 2-3% of my investment. I'm going to continue to add money to my Constant account and I'm also going to use their service to freely convert to PRV and start staking.
It's a great service, with free deposits and withdrawals, extremely fast responding customer support and a transparent team. You can find more out about Constant in the podcast I've conducted with them.