Crypto Loans in LatAm
The economic situation in parts of Latin America right now is not a good one. Inflation is rampant and to combat this, interest rates are very high. Mexico's central bank raised rates to an all-time high of 8.5% and Brazil's base rate is 13.75%. But those numbers pale in comparison to Argentina, where the reference interest rate is 75%! Bear in mind that is the reference rate. If an Argentinian citizen wants a loan from a bank, the interest rate they will have to pay on it is much higher - sometimes over 200%.
These high interest rates are squeezing people's access to credit and meaning that they can't borrow the money they need. Borrowers in Latam have turned to crypto loans, where the interest rate they pay is about half that of the rates offered by local banks.
Ledn is a Canada-based crypto lending platform. Latin America now accounts for around 50% of the loans granted by Ledn. Buenbit is a Latin American crypto exchange that has started offering crypto loans, and on average 30 loans are opened and 25 closed every day on Buenbit's platform. Num Finance is another platform offering loans in NuARS and NuPen (stablecoins pegged to the Argentinian Peso and Peruvian Sol respectively). According to Num Finance's CEO, more than $250,000 worth of loans was leant out by the company last month.
This is just another example of a situation where crypto can help when the traditional banking system is in turmoil.
Solana Goes Down....Again
Last Friday there was a major outage on the Solana network. The blockchain stopped processing transactions. This outage seemed to be caused by a misconfigured validator node. This node created a fork in the chain. As we discussed last week, a fork is a situation where a blockchain splits - there is now a second blockchain which shares all its history with the original chain, but is now going off in its own direction. Some validators were getting stuck on the wrong fork.
The problem was eventually fixed, but this outage brings back age-old questions about the Solana network. In mid-2021, blockchain research firm Messari found that nearly 50% of Solana’s SOL tokens are held by venture capitalists, developers working on Solana and the Solana labs company itself. The Ethereum network has more than 400,000 unique validators. The relevant number for Solana is around 3400. All in all, the evidence shows that the Solana network may not be decentralised enough. And centralisation makes a blockchain easier to hack or bring down.
Solana has done a great job funding new projects and encouraging builders to build on top of the ecosystem. But as long as incidents like this occur, there will always be questions about the viability of the network in future.