Dharma, the San Francisco, California, USA-based crypto lending platform has recently announced that it’s temporarily pausing its key operations partially. The company has announced this recently on its Twitter feed, and the reason for the temporary pause could be the fact that it’s developing its product.
The news assumes importance considering the promise of blockchain-based lending and the recent emergence of several such platforms. This development also highlights the relatively uncertain nature of the overall blockchain-crypto business landscape.
Crypto lending platforms intend to improve the micro-lending landscape. While large banks and financial services institutions are ready to offer credit to large enterprises, it’s not easy for small and medium businesses (SMBs) to get credit.
SMBs lack access to credit due to various reasons, e.g., banks find the process of lending to them costly. Banks often avoid lending to SMBs due to process inefficiencies, operational challenges, and staffing challenges.
Microlending promised much, however, high-interest rates have curtailed its effectiveness. Experts are also finding that microlending isn’t quite working as desired, e.g., it’s not enabling enough entrepreneurs to build SMBs. The success of MUDRA, i.e., the micro-loan scheme run by the Indian government is merely an exception.
Large overheads, massive operating costs, high fees, slow transactions, and corruption mire the micro-lending landscape, and blockchain is rapidly emerging as a viable solution. Blockchain offers decentralization, transparency, the immutability of records, and cost reduction, and these are precisely what micro-lending needs!
The importance of crypto lending platforms
Crypto lending platforms enable cryptocurrency-user to take loans against their crypto holding, and their crypto acts as collateral. They can take loans in USD, EUR, etc., and they don’t need a credit history.
The efficient processes in these platforms eliminate paperwork and expedite the loan disbursement. BlockFi, Nexo, and SALT Lending are examples of prominent crypto lending platforms, and SALT is even expanding its reach.
However, much of the blockchain-crypto businesses across verticals and geographies continue to operate outside the purview of applicable regulations, and this poses a challenge. For e.g., BitConnect, a controversial crypto-lending platform turned out to be a Ponzi scheme, and it has now shut down leaving its customers in the lurch!
Dharma is a P2P crypto lending platform built on Ethereum, and the company promises to make credit accessible globally. Earlier in 2019, Dharma received $7 million in funding from Coinbase, the popular crypto exchange.
Its latest announcement states that Dharma is pausing all new deposits and loans, however, existing deposit or loan account holders can continue to operate their accounts normally. The company indicates that it’s developing its product further.
The need for better communication
Arguably, blockchain-crypto stakeholders need better communication from the crypto start-ups. Given the sub-optimal state of the micro-lending landscape, the promise of a crypto lending platform is indeed great. However, more substantive communication on the part of Dharma would give the much-needed clarity to its stakeholders.
