July 27, 2025
5 min read
George Steer
New crypto lending ventures increase risky loans, echoing microfinance but with amplified dangers despite past wipeouts.
The resurgence of digital asset prices has inspired a new wave of crypto lending ventures, often described as "microfinance on steroids," that are making precarious loans despite the painful wipeout experienced three years ago.
These crypto lenders are offering high-risk loans to retail and institutional borrowers, leveraging the booming crypto market to attract capital and expand rapidly. Unlike traditional microfinance, which typically involves small loans to underserved populations with careful risk management, these new crypto lenders operate with aggressive leverage and limited regulatory oversight.
The model involves lending digital assets against collateral, often other volatile cryptocurrencies, which can lead to rapid liquidation and losses if market conditions turn adverse. This cycle of lending and liquidation was a key factor in the crypto market crash three years ago, yet many firms are repeating the pattern in pursuit of high returns.
Industry insiders warn that this approach significantly increases systemic risk in the crypto ecosystem. The lack of transparency and the complex interconnections between lending platforms and decentralized finance (DeFi) protocols make it difficult to assess the full extent of potential contagion.
Despite these risks, the promise of outsized yields continues to attract investors and borrowers alike. Some new entrants are innovating with automated credit scoring and risk management tools, but skepticism remains about their effectiveness in such a volatile market.
Regulators worldwide are beginning to scrutinize these crypto lending activities more closely, emphasizing the need for clearer rules to protect consumers and maintain financial stability.
As the crypto lending sector grows, the balance between innovation and risk management will be critical to avoid repeating past crises.
Source: Financial Times