- Crypto credits: Around the world, alternative models are spreading due to unequal access to credit.
- Asset tokenization or cryptocurrency-backed loans are the most common models
The credit level in Latin America has always been insufficient, influenced by economic, political, and social factors specific to each country.
Between 2004 and 2011, according to the World Bank, domestic credit to the private sector as a percentage of GDP showed increases in several countries in the region: this indicator grew by an average of 9% in real terms. However, since the end of 2022, a decrease in credit growth rates has been observed across almost all sectors.
Even in countries like the United States, the Eurozone, and Japan, credit growth has been moderate in recent years. Only in countries like China, India, and Brazil has it grown rapidly, driven by economic expansion and financial inclusion. This is why attention is now focused on crypto credits, a very recent financial instrument that is emerging as an innovative solution for businesses looking for liquidity without having to part with their digital assets.
This approach allows organizations to use cryptocurrencies as collateral to obtain loans, offering financial flexibility and tax optimization. Let’s take a look at how this is developing.
Coinbase: instant loans
Coinbase, one of the world’s leading cryptocurrency exchange platforms, has launched a service that allows users to obtain instant loans backed by Bitcoin.
How does it work? Customers can request up to $100,000 in USD Coin (USDC) without the need for a traditional credit assessment. The loan amount is based on the value of the Bitcoin offered as collateral.
This service is integrated into the Coinbase app and uses the decentralized finance platform Morpho on the platform’s Base blockchain.
A notable advantage is that borrowers can access liquidity without selling their Bitcoin, thus avoiding potential capital gains taxes. However, it is important to note that Bitcoin’s volatility can affect the value of the collateral.
Pioneers in Latam
Ripio, one of the first cryptocurrency exchanges in Latin America, also offers a credit service for Argentine users. The platform, which operates with blockchain technology, allows the user to request a loan and pay it off within 30 days without the need for a bank account or a credit card.
Propy: loans for real estate acquisition
The real estate company Propy is introducing cryptocurrency-backed loans for property purchases. It is a U.S.-based company specializing in Web3, which markets real estate through tokenization.
Bitcoin and Ether holders can use their digital assets as collateral to obtain loans for the purchase of tokenized properties. This approach allows real estate investors to access financing without liquidating their cryptocurrency holdings, facilitating portfolio diversification and real estate investment.
Tokenized microcredits
In 2024, we reported in this space on Argentina’s first tokenized microcredit, which was granted to a small traditional family business.
The operation was led by the CryptoMate platform and the microcredit institution FIO. This loan, backed by the USDC stablecoin, allowed a leather goods store with over 25 years of history to secure financing that is scarce in local banks.
Considerations for companies
For companies interested in leveraging crypto credits, it is essential to carefully assess the associated risks, especially the inherent volatility of cryptocurrencies. Selecting reliable platforms and understanding the terms of the loan are crucial for effective financial management. Additionally, it is advisable to stay updated on local and international regulations related to cryptocurrencies and asset-backed loans.
Crypto credits represent an emerging financial tool that provides individuals and companies with a way to access liquidity. With proper risk assessment and strategic planning, organizations can integrate this option into their financial operations to enhance their flexibility and efficiency