This article is an extension of a previous post that I started writing about earning interest on the blockchain. I updated my research, and adapted it to the EOS/Worbli context, which I believe will host the next generation of blockchain decentralised banking and financial services. First I would like to step back a little, and explain where lending (or staking) and borrowing fit into a more complete financial stack. I use Etherium as a comparison, since the ecosystem is more mature, and there is a lot that we can learn from this ground breaking platform. Hopefully, we can build upon some of the issues, and improve as we move forward. The image below is helpful in mapping the different financial services. There is a lot there, but for the purpose of this article, I will be drilling down mostly on the loans and borrowing, since that is what I have been looking into lately, for my own self-serving needs. Maybe others can benefit as well.
Trading and DEX exchanges
I am also currently researching the new space of STO’s or SRC20 compliant security tokens. In the near future, we will be moving beyond ERC20 tokens, and the current ways of raising capital for startups. ICO’s brought venture capital investing to the masses, but also brought with it a lot of fraud and scam projects, unfortunately. Here is a very good Medium article on the subject of security tokens. Suffice it to say that I think Worbli is a good platform for this type of service. But, I digress. This whole area is potentially huge. More on this in a future article(s).
Loans and borrowing (EOS)
It seems that that what we used to call earning interest or dividends is very similar to staking money (or coins/tokens) with some differences, or improvements. I have found that the various projects have taken different approaches to these types of rewards. In the case of EOS, we are in the early stages, but the Worbli sister chain would definitely be a good platform for these types of financial services, for the reasons stated below, in the conclusion. There is a very good article on Chintai vs. Rex called token leasing on chain, so I don’t really need to repeat those points. The author does a good job of explaining the differences between the 2 projects, and some of the issues, like voting rights for example. I think that earning interest, or staking on the EOS platform is evolving and improving, but Worbli seems to be optimal for these types of applications.
Loans and borrowing (other platforms)
Most of the current breed of lending/borrowing dapps running on Etherium smart contracts, and are a little more mature, but still fairly new. Each project has taken a different approach and has advantages and disadvantages. From what I can surmise, most of them don’t have any problems attracting lenders, but borrowers is a different story. So, I think the success of a project will depend on their ability to attract mainstream and institutional borrowers. They need the interest on outgoing loans to be able to pay depositors. They all use crypto as collateral, so they are not taking a lot of risk, unless the market goes down sharply, in which case they might have to demand the collateral be increased or call in the loans. In general the rates are better than the conventional system, but its hard to compare apples and oranges. They also tend to use regulated custodians to store funds like Bitgo or Coinbase, and will be having audits for assurance. On the one hand, the custodians are considered safer than your own wallet, but you don’t get the private keys which is the trade off. Maybe a compromise would be a muti-signature type of wallet, where you both have access, but I don’t know of any services that offer this for now.
Here are some of the systems that I have tested, in no particular order (Note – I only tested lending, or staking and not borrowing, since that was what I am primarily concerned with):
Coinbase Compound – This is a very good project with a good team behind it. It appears to have the best rates at this point for etherium lending/borrowing. They also support 4 other coins. They do an interest calculation on every new block, which is the most frequent that I have seen. The founder told me that the interest is added to the balance, and the next interest calculation is based on the accumulated amount, in effect compounding on a continuous basis. The interest is accrued and paid out when you withdraw which you can do at any time. Like most of the projects, the rates are subject to change based on various factors, but currently at 10% annualised for eth. On the downside there are some inconveniences like having to convert eth to weth, and paying eth gas fees for every transaction. (this is an inherent issue with the etherium platform) It works well on the desktop, but I wasn’t able to get my account working on mobile. Apparently, you have to use the new Coinbase mobile wallet, and access the dapp that way, but it doesn’t seem to be well integrated yet. I posted my issues on the Coinbase wallet forum, but havn’t received a solution yet. There is one simple screen with the balances and interest, which is easy to understand, but the reporting still seems to be in development. Members of the community are working on various reports, statistics, and integrations. The project is quite centralised for now, but they have plans to move to more decentralised governance. Overall, I think that they have a bright future, with Coinbase backing and support, and I like the strategy as per the white paper. There is no internal token or ICO, and the project is privately funded (Bain, Andreeson, Polychain). Here is a coindesk article on Compound for more info.
Celsius – This is the simplest service that I have used. You don’t have to deal with the weth/gas issue that I mentioned above, and the payments are on a regular/weekly basis, with an email notification. The rates are reasonable, they are reliable, and have good support. The payments are in the lending currency, so the compounding is weekly for now. In future the interest will be paid out in CEL tokens instead of the lending currency, so the compounding may change. You have to pass KYC/AML checks, and you can transfer to fiat and back for loans. The dapp is currently running on mobile, but I wouldn’t mind having a desktop version as well. The reporting is good, and you can withdraw at any time. They have a very good team and advisers and I like their strategy for the future. They are fairly centralised, in terms of decision making but are currently community driven, and I hope that they will eventually move toward more decentralised decision making and governance. They are featured in a recent article on coindesk. They are planning to move to their own blockchain by 2019. Maybe they should look at migrating to Worbli.
Cobo cloud wallet for staking rewards – this is an interesting alternative to leasing your tokens for interest. I tried it out, and I did get some staking rewards, but they didn’t seem to correspond to the rates that were quoted, and I don’t know when the payouts are going to be. They don’t seem to be regular. They don’t seem to be as reliable as Celsius or Compound, but I am still try to get more information. Here is their site, and a brief article that I wrote about them on Trybe. They give you the option of using a cloud, or cold storage version of the wallet. But you have to use the cloud version if you want to get the staking rewards, which means that you don’t control your keys, since your funds are deposited with their custodian. I am still doing evaluation and testing with this system. They don’t seem to be as transparent as the other options above, but it might have something to do with having to translate documentation from Chinese to English. The app runs on mobile, and their support team was responsive when I ran into a technical problem, with the android version. I personally prefer desktop, but its not a big deal to use the mobile version and it functions pretty well.
Bsave – The system has a good MVP, but doesn’t seem to be live. I have applied for a test account, but havn’t been able to test it yet. It looks like this may be a good option for lending bitcoin, and they have an interesting feature called defender, which lets you lock in the price of bitcoin with a stable coin for lending/borrowing. More to come, when I can evaluate.
Salt – They just upgraded their system. But I couldn’t find any way to lend money – only borrow. So, I didn’t spend much time with the system.
Nexo – I couldn’t find any information about how to lend on this system, only borrow.
Peer to Peer options (such as ethllend and lendingblock etc) – I didn’t investigate those alternatives, since I don’t like having to deal with order books and having to negotiate with counter parties for rates, amounts, payback terms, collateral and private keys etc. while lending tokens. I would rather have the platform deal with these things for me, like I am used to in the traditional systems, even if I give up some control.
I feel that Worbli is the best platform for this type of dapp/service that I know of, for the following reasons:
-AML/KYC and compliance with government regulations, Whether you like it or not, there are currently a lot of frauds and scams, and this is going to help reduce them. It will also help increase adoption by the mainstream, and institutions
– Insurance and custodians for wallets. In the real world people make mistakes like losing their keys, or sending something to the wrong address. The current systems are too rigid, and unforgiving.
– Facilitation of fiat / digital transactions. Most things still run in the fiat world and won’t be changing for quite a while. So this is important to be able to deal with the transition.
– Audits and security testing/compliance. This helps build trust that regulations are complied with, and security is robust. Essential for financial services.
– Ease of use for non-technical users. The UI is a key component for success, and continued use. The software must be forgiving of errors, and have helpful error messages. Training and Technical support are also important to prevent problems, and help resolve them when they occur. This is lacking in many of the current blockchain projects and is important for mass adoption.
My understanding is that these things will be a priority for Worbli. For now, I will continue to use Compound, Celsius, and Cobo. I will delve into Chintai more, and follow the REX project. I believe that the future of “Post Etherium” financial systems will be based on EOS and Worbli. Like they say, “this is not financial advice and make sure to do your own reseaerch”.