Crypto Loans & How To Get Around The Lack of a Credit System?

Moola Financial Group was recently fortunate enough to sit down and chat with the team at Btcpop.co. In the interview below the team at Btcpop goes into great detail about their crypto loans platform as well as talking about how new ctypto projects can more easily get listed on exchanges. However, before we jump into the interview take a few minutes and watch there explainer video below. 

Can you begin by telling us a little bit more about the history of BTCpop.co and what you’re doing to differentiate yourself in the increasingly crowded crypto exchange space?

Btcpop.co has a rich history, but I will do my best to summarize. Btcpop started as only a P2P lending site, differentiating from the existing platforms by creating a free marketplace and giving autonomy back to users that other platforms were slowly taking away. From 2015 to the start of the 2017 bull market P2P lending was a very popular and profitable activity. Hundreds of thousands if not millions of dollars of loans were issued a month between platforms. But, following the price volatility and mania, the industry was destroyed by defaults, regulation, and the general end of “small community Bitcoin”.

The middle of Btcpop is messy. The whole P2P Bitcoin lending industry was essentially destroyed by rapid price volatility and defaults. Btcpop was an exception until it wasn’t. Prior ownership got overzealous with new features, created exploitable bugs, lost user funds, and exit scammed.

In June of 2016 current ownership purchased Btcpop and made everyone right out of his own pocket. Then piece by piece cleaned up the mess old management made. Btcpop has operated efficiently and legitimately now since. A result of the mania and crypto becoming more mainstream is that reputation based lending has given way to collateral based lending, which is where Btcpop has established itself.

Recently, Btcpop has begun focusing its efforts on our exchange, which we have dubbed “The Staking Exchange”. Building a successful exchange has synergies with collateral liquidation as well as spurring lending demand on our platform. Our differentiation point is our automatic pooled staking service and eventually masternodes for POS coins. I also think our P2P lending market and other offerings will set Btcpop’s exchange apart and make it an attractive option.

BTCpop offers 2P2 loans and allows users to essentially be their own bank. Can you go into more detail about how crypto loans on your platform work? What similarities do P2P crypto loans they share with more traditional non crypto loans?

“Banking with Bitcoin” is a unique proposition when compared to how existing banks work and Bitcoins early montra of “Be your own bank”. The truth is that banking and money are separate. Just because you have Bitcoin doesn’t make you a bank, you still need loans, and you probably want to earn interest on your idle Bitcoin as well. But, Bitcoin is a different kind of money, and it doesn’t work with the fractional reserve fiat banks we have today.

So it seems obvious that the solution to banking with P2P money, was a P2P bank!

To better understand let’s break down what services traditional banking provides:

– Makes money digital and easy to use (checking, debit card, credit card)
– Provides a high level of security at a low cost (vaults, insurance, digital security)
– Act as payment agents (middleman in transactions: bank wires, certified checks, credit card holds ect)
– Provides credit (loans, credit cards, lines of credit)
– Pays interest (savings accounts, CD’s)

The difference with Bitcoin, is that it does items 1-3 by itself, which is why Bitcoin and “Being your own Bank” tend to go together.

Makes money digital and easy to use → Bitcoin is already digital and easy to use
Provides high level of security at low cost → Bitcoin is very secure almost for free
Acts as a payment Agent → Bitcoin doesn’t require 3rd parties, transactions can be done peer to peer. Where 3rd parties are needed (escrow, chargebacks) they can be hired separately.

But there are 2 things Bitcoin cannot do alone

4. Providing credit
5. Paying interest

As Bitcoin was built as a peer to peer money in an essentially trustless system. It doesn’t make sense to take your P2P money and deposit it with a bank, or with a 3rd party you have to trust. But, as borrowing and lending are still essential to the overall banking service, P2P banking fills the middle ground enabling banking, but your in control of your funds the whole time. While Btcpop is custodial, it does not move or control user funds in any way. To this day Btcpop has never altered a users account except during default, and all user funds are fully secured, backed up, and auditable on your own statement.

What are the primary differences between P2P crypto loans and more traditional non crypto loans?

Sound Money: The main difference is that cryptocurrency is sound money which cannot be created out of thin air via fractional reserve banking. In a fiat bank if someone deposits $100, banks as an aggregate can create upwards of $900 worth of loans depending on reserve requirements and other factors. With Bitcoin, if someone deposits 1 Btc, only 1 Btc worth of loans can ever be created. So every loan comes directly from someone else (P2P).

Marketplace not a Banker: If you go to a bank you will likely interact with a banker. The banker unilaterally (of course with bank rules + regulations) decides how much he/she is willing to lend you at what interest rate and terms.

With P2P loans this decision making is moved to an open market. You list your loan and terms you are willing to pay, and other peers from around the world individually decide if they want to invest any amount in your proposal or not. The final decision is made by the overall market funding or not funding your loan.

Aside from that crypto loans are basically the same. You get your loan, make set payments + interest until the loan is paid off. And if you are late or don’t make your payment there are consequences.

To help make our audience visualize a loan transaction in a non abstract way, can you give us an example of a what the process looks like for a loan seeker on your website? Can you walk us through the process, requirements, timeline, payout systems, payback systems etc for the entire process?

Getting a loan at Btcpop can be quick easy and simple with an Instant Collateral Loan, or slightly more complex with custom loans and bonds.

To get an instant collateral loan (15 min):
Sign up and secure account with 2fa
Deposit Collateral
Get a Bitcoin loan against that collateral at set terms

To get any other type of loan the process takes a bit longer

Sign up and secure account with 2fa
Verify your identity
Enter Name, DOB, Address
Pay postage fee BTC/BCH (around $3) and wait for physical letter to arrive in the mail
Following this receiving the code in the mail:
Submit verification documents
Government issued ID
Selfi with code
Video with code
Verify SMS
Link social media/google accounts

Getting a Loan

Once Verified you are able to create a loan proposal on Btcpop’s loan marketplace. However, as there isn’t an established credit system in cryptocurrency yet, you are likely not going to get a loan, or only get a very small loan without using collateral or building a reputation on the platform over time.

Collateral Loans: The best way to navigate lack of reputation and trust is to put your skin in the game via collateral. Banks don’t give people mortgages without your house as collateral, same with car loans and pretty much everything else. The same is true for cryptocurrency, so putting up P2P shares or altcoins as collateral gives investors the confidence to lend to you.

Building Reputation: Once you have repaid a couple collateral loans or been around for awhile you will notice you can borrow larger amounts, or with less collateral as a % of your loan. This is because you have invested in your reputation repaying loans and participating in the community. So while reputation is an intangible thing, it’s still valuable for loans. Be careful though, its slow and expensive to build reputation, but quick and easy to lose it.

Paying back your loan
Depending on the repayment terms of your loan (how long, and payment intervals) the loan operates much like any other bank loan. When you repay, the BTC +interest is immediately paid out to all investors. Partial payments and early payments are available as well.

Defaults
In the unfortunate case of defaults, borrowers accounts are locked and they are given 14 days to communicate, make partial payments, or refinance their loan. If none of this is successful all collateral is liquidated until payments and late fees are paid via Btcpop’s liquidation script.

What are the most common reasons people ask for a loan within your platform? Are loan transactions generally personal or business related?

For now cryptocurrency is primarily a speculative asset the most common reason for taking out a loan is trading. However, we get a large variety of loan requests from business loans and refinancing fiat debt to vacations and wedding rings.

In the long run I think loans will become even more diverse as essentially anyone around the world can create a loan request for any reason, and investors can invest for any reason. The world has yet to really have global banking, and eventually Btcpop hopes to enable that service.

What incentives are there for people to lend money?

Nobody I know takes on risk without the promise or chance of reward. The same is true with P2P loans, depositors or investors are in it to make interest on their crypto holdings. With P2P loans interest on loans isn’t diluted like fiat banks CD’s and savings account rates. If a borrower is paying 8% interest, that whole 8% goes proportionately to people who funded the loan. Btcpop is a low friction middleman with only a 1% listing fee.

Interest on lending Bitcoin can be quite profitable especially in periods of high volatility when margin lending is 10%+ APR. A good loan from a high reputation borrower with good collateral can provide a very attractive risk/reward investment.

It is still best to always be cautious with Bitcoin lending and do the industry best practices. Default in P2P lending can wipe out a lot of gains so its important to diversify and remember you are responsible for doing the due diligence a banker normally would.

If you have a lower tolerance for risk there is always our Bitcoin savings account where there is no default risk (as Btcpop takes that on), but also lower returns.

Now let’s talk about your exchange. You currently offer trading on your platform as well. What’s your current volume and what has your growth rate been over the years? Lastly, what your growth plans for your exchange in 2019?

Btcpop’s current exchange is admittedly minimalistic and relatively low volume. However, its honest, secure, and functions properly.

For the last year Btcpop’s focus has been towards revamping and launching a modern high quality cryptocurrency exchange. However, fixing our current site and developer turnover has set this project back significantly later than we would have hoped. But, even with our minimalist placeholder exchange volume has been increasing every month, and revenue from trading has even begun to regularly surpass loan fees. As we don’t currently have an API its difficult to estimate but I would personally estimate monthly volume is around 50-100BTC where it was only 1-10 BTC years ago. It’s only a few BTC a day, but steadily increasing every month.

With many obstacles now out of the way, I am confident Btcpop will be able to launch our new user interface and exchange within the year of 2019. I am not involved enough in the backend coding to know the status of the trading engine or implementing API, but I don’t think that will be far behind.

When our new exchange and UI is launched Btcpop plans to aggressively pursue growth and we will be stepping up our marketing efforts to bring volume to our new platform and exchange. Our current low listing fee reflects this, and people that list their coin now will continue to be listed when we launch the new exchange.

You also allow for new tokens to be listed on your exchange. What are the 3 most important features you you look at when a new project is submitted to your exchange?

Sticking with our ethos of a “Free Market Platform” Btcpop is completely neutral about listing assets on our exchange. We want to interfere as least as possible and let peers buy or sell freely according to their individual decisions. We still have listing requirements such as functional blockchain, wallet, code, API listing (coinmarketcap for example). But, for the most part we are low friction for getting listed on our exchange.

So the 3 most important features we look for are:

– Open source and honest (we will not knowly list a scam)
– Secure Blockchain / token
– Wallet maintenance and notice for updates

We do not sponsor or support any coin that we list on Btcpop, and we advise all investors or traders to do their due diligence before making any investment on Btcpop. With freedom comes responsibility.

What are the 3 biggest mistakes that you feel crypto projects make when submitting their project to your exchange? What types of things will result in an immediate rejection of application?

Btcpop does not often reject applications, and so far we have not had to reject many at all. As before, if you have a legitimate honest token and project, Btcpop supports the free market and makes no claim to doing due diligence for investors. If you use Btcpop, you are investing at your own risk, we will just do our best to provide you with quality information and tools so users from around the world can come together and transact.

Some examples of things that would result in immediate listing rejections:

– Dishonest project
– Malware
– Insecure wallet / blockchain
– Forking problem
– Unwillingness to repair wallet/blockchain issues
– Illegal activities or crime

What advice would you give to new crypto projects who currently are not trading (or have limited liquidity) when it comes to getting their token listed on exchanges and increasing token liquidity?

Provide a useful real world service. Cryptocurrencies in my opinion are slowly moving past the 100% speculative phase. So if you want to have a useful token or project, you have to provide value to users. Pursue partnerships, merchant adoption, use of currency in video games or any infinite number of possibilities to make your token or coin more than just a fancy database.

Thanks for taking the time to chat with us today. We really appreciate it! To our audience, if you want to learn more about btcpop.co we highly recommend you head over to their website at: btcpop.co

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