People heavily depend on banks to live in the modern world. Even the most basic of our activities, such as buying from groceries, is mostly done through our credit cards, a means of taking out a loan that is to be paid back. In any kind of credit service, be it swiping a card or mortgage, banks, at their end generate the funds through investors and loan it out.
Though we have entrusted banks for centuries, they have shown time and again that they only work towards their benefit and the customers are at a lower priority. The banking crisis of 2008 is a prime example where they allowed subprime mortgages to high-risk parties which resulted in a financial crunch globally when the investors’ money was lost. Then there’s the issue of the unbanked, with 1.7 billion in 2017 unable to access banking services because of the overly tight restrictions by the institutes.
Blockchain: A Partial Solution
Blockchain and cryptocurrencies were hailed as the perfect answer to the current banking mechanism, where the elite few controlled the world's wealth. With decentralization came the revolution where the power of finances has been given back to the people.
This has come with limited impact though. Decentralization offers a much better option, but it lacks the many features of traditional banking. The new ways of money management are a foreign concept to many and these fail to fulfill their requirements.
The new technology comes with its own set of financial rules. These are not something an ordinary person is used to and can cause confusion. The credit lending methods can be too complex to understand. At the same time, since blockchain is a rising technology, not many are aware of it and this limits the practical application to only those people who have had exposure to the sector.
Many lending and credit services on blockchain leverage the technology and have little compliance (if any) with traditional financial regulations. This discourages people as there is a higher risk, lesser investors’ rights guaranteed, etc. Then there is the lack of professional tools. To get a loan through a blockchain-based service, for example, people need to deposit collaterals that are nearly always in the shape of cryptos, which further creates an entry barrier as a loan seeker may not have one and will need to delve into the highly volatile market without much knowledge, making unfavorable financial decisions.
How Credefi Solves the Problem
Credefi is a lending and credit platform that aims to merge the worlds of DeFi and the conventional banking setup. Where other decentralized platforms aim to disrupt the market, Credefi intends to merge them in one.
The traditional investment and credit services on Credefi include:
- Investments: With an estimated minimum of 10% return per annum, users will be able to select investments in stablecoins portfolios depending on their willingness to take risks, powered by Credefi generated credit scoring and risk assessments.
- Lending and Borrowing: Direct P2P loan capabilities with people connecting from all over the world, with the option of even a collateral-free loan which will be case dependent.
- Trade Finance: Traditional banking instruments such as Letter of Credit will be available on the decentralized Credefi network, along with others in the plan.
Credefi is also partnering with an EU-based financial firm to offer services that are in line with regulations.
The whole Credefi ecosystem is powered by its native CREDI token. It will be launched in two stages, the first being a private sales of 10 million CREDI for approved investors and then a public ILO 110 million in quantity) which will be done in stages to counter inflation.