Constant offers fixed-rate term loans on their P2P lending platform. This is the first in a two-part series about Constant and their sister project Incognito.
Let’s talk about how Constant came about. It has been a year since you launched in January 2019. We originally launched as a stablecoin. We wanted to upgrade money that was the original idea. We wanted to create a stablecoin that was pegged to the USD and cut the cost of international transfers etc. From then, we were trying to give people stability and then how can we help them grow their money instead of just stabilising it. We started looking at the P2P lending industry in China and the UK. All these lenders had a real collateral problem. As a customer, you were relying on the platform to do the risk analysis for you. We think P2P lending is a good idea in principle, but it has a collateral problem. We knew from speaking to Crypto-holders we knew they needed cash but couldn’t get any, without cashing out their holdings which they didn’t want to do. So we realised there was a problem there and a solution; we could do p2p lending with cryptocurrency as collateral and as you know the thing with Cryptocurrency is they might be very volatile but they are also very liquid; it is very easy to sell cryptocurrency. It seemed like the perfect solution.
As we developed the platform, we thought about how do we handle volatility. We came up with over-collateralization as the answer. We require 150% collateral against loans to hedge against changes in prices, and we also cap our exposure to certain cryptocurrencies. In this way we don’t cause a crash if we have to sell into the market should there be a default on the loans. We try to only onboard good crypto-projects as well.
That’s how we became a P2P lending company; over time we released new features like Pro… which is the first-ever open order book for P2P lending on the market where investors and borrowers can go have a look at the best rates across the market. Next, we released Flex through Compound Finance, their open source technology, so we could lend our customer’s deposits through the compound marketplace so they could earn interest and still be able to withdraw at any time because it is a lending pool rather than directly to a borrower. We are not the largest P2P lending platform in Southeast Asia. We have matched over $4 Million dollars in loans. Most of the volume is from the US, but we are the leading platform in Southeast Asia. We have gone through many changes, but our mission to try to help people with their money and their assets has remained the same.
We regularly blog about our loan volumes. There are some significant volume coming through. It is entirely a customer-driven market. The idea was that we wanted to differentiate ourselves by being truly peer-to-peer, but letting the customers set the rates. With our market, we put in a number as a guide to help people who want to make a quick match. It just depends on the market and what people are willing to pay. The 8% number is a reflection of the dip in the market in general. These are secured loans. This isn’t like going to Compound.
We ask the borrowers to put up 150% of the loan amount in their chosen cryptocurrency we have a LPV rate of 66% for most cryptocurrencies. Depending on which one it is the LPV may change. After they have put up their collateral, they get their loan. If they default at the end of their term, then we sell their collateral to repay the investor. And equally, if the market has crashed and the value of their collateral falls to 110% of the investors loan value plus interest to date, once it reaches this value it is similarly liquidated automatically, and the investor is repaid. The Custodian right now for the borrowers is BitGo, and they hold BitGo’s supported currencies. You will send it to their secured escrow up to $100 million. For the investor, the money goes to the borrower. You can put the money with PrimeTrust an accredited US company that we use that hold your funds on your behalf. Or you can invest your balance with Flex. We pay that every second. We are arbitraging the rate between what you get and what Flex pays out.
The constant token or stablecoin is used on the platform to transact. The platform is an easy on-ramp for Fiat as well as for stablecoins. Where is your stablecoin used? CONSTANT is used in the back end of the platform. The money itself goes to PrimeTrust; we mint CONSTANT to represent this. It is purely a utility token for doing business on the platform. It is an internal measurement tool. When you use Flex, you convert it to DAI. The Compound Finance protocol does not support CONSTANT, so it gets converted into a supported stablecoin like DAI.
The fiat on-ramp is a cool feature of Constant. It is one of our differentiators for sure. The Constant platform is not backed by FDIC, but PrimeTrust is FDIC insured. We give customers the option to make use of PrimeTrust or Flex. It is up to our customers. We find a lot of our customers are going to invest. The big difference with Flex is that it is a pool, and you earn the interest either way.
You have a lot of stablecoins listed. I can list 1000 DAI at 8%; which is better than 6% at compound. There is arbitrage between these which you could exploit. Operationally the Constant platform is not exceptionally fast as it is a lending platform, not a trading platform. We are trying to automate manual processes to make them faster. For margin/arbitrage trading, it might not be as fast as it should be for this process.
Since last year , the team has slimmed down as we have become more defined as a product. Our team has become more focussed. We haven’t shrunk but have remained stable. We are still committed to that goal of helping people with their finances to do more with their money.
What separates you from other Crypto lenders? I suppose the big differentiator for us is you see a lot of really great software and technology which when used properly can help people grow their money. What is lacking though, is that there is not much education going on to educate people about crypto who have never touched crypto? That is where we are different; we focus on giving the right tools, but also give people the expertise to use the tools effectively. We have 24/7 support to help people use the platform properly. We are also building a content library to help users get the most out of the Constant platform. Constant is all of these things along with a great user experience, and we are trying to reach as many people as possible; not just crypto people.
This is why we have this easy conversion in and out of Fiat. We are really passionate about transparency and how we protect collateral and what the risks are of using the platform. We need transparency as a business, our customers want it, and the industry needs it.
Featurewise, we also offer a staking service, you can stake and earn interest on your cryptocurrency without any additional hardware or complicated setup. You can earn up to 80% APR on the currency you stake. When you combine it with a loan, you can really reduce the amount you are paying. Right now you support PRV, Tomo and Zcoin. Is the staking offered through you so you can bundle it up into larger stakes. I don’t know about Tomo and ZCoin. Is there any benefit to using Constant versus doing it yourself?
We might not pay as much as staking on your own. But then there are a lot of people who don’t want the hassle of setting it all up. For us, the staking as a service is all about convenience for our customers; you are still going to earn more than you would holding it, but you don’t have all the hassle involved. Again it is about making it accessible and convenient for customers. There is also the matter of the minimum stake; our minimum is a lot lower staking through us.
Your partnership with Incognito was very interesting to me. I think it is a cool idea to have private node for your transactions. Being able to stake your PRV is a great idea as you can borrow against it. The key difference is that it is not P2P; it is on the compound finance platform, which we are investing in a company. We are offering PRV loans to set up the nodes in the system. Do you have a node yourself for PRV? I have been running a virtual node. I would recommend staking through us if you are not a technical person. Sam is going to buy a node through their website to test it out.
There are no fees for investors at all. There is only a 1% matching fee for borrowers on the constant platform. We also offer free withdrawals now because we listened to our customers. It should incentivise more transactions.
We have new features to address the volatility risk of cryptocurrencies such as automatic top of collateral and due-diligence of new cryptocurrencies. Usually, if you are an investor, we have to wait for funds to arrive; being a gold member, we will automatically start matching you. Our memberships have passive benefits.
What’s coming in 2020 for Constant? We have several things coming. We are looking into alternative ways of securing loans, possibly going to get into business loans and looking into getting new staking partners. We are going to double down on our inbound marketing efforts; what we want to start producing content that reaches a wider audience. We pride ourselves on being a platform for everyone, not just crypto-holders. So part of that is getting the message out and making people aware of our platform and what it can do. How we can solve their problems and DeFi in general. As you can imagine, blockchain and crypto is relatively new, so it is going to be hard work, but that is the plan.
What about other types of tokens like property or other assets? You mean the tokenisation of assets; for us the market needs more liquidity. In a customer-driven market, liquidity is super important to us and we have to find that balance between investors and borrowers in deciding which tokens to onboard and the risk of default and how easy it is to recoup losses. Because that is what our whole business model is based on, having tokens that are liquid and can be easily liquidated. If the tokens are not liquid enough, then we have to be able to change our LPV and cap our exposure. It is all about managing risk. Security tokens in the future? Absolutely once the market becomes a big enough market, I can see us offering loans against these tokens in the future.
The business loans you are talking about would be secured by the value of the business or purchase orders or purchase order financing. We would prefer not to get into a position where we are evaluating risk; we want to be a risk-less platform. We want to be able to sufficiently mitigate risk the way we do with our cryptocurrency collateral. It is a tricky one. We feel there are enough P2P business loan platforms already out there.
Outside of Constant, can I buy your stablecoin anywhere? No, you could withdraw it into your account. It would be better to convert it into USDC.
Could I withdraw as DAI or TrueUSD? Yes. How do you handle the exchange for that? We usually keep reserves for that. We have advertised service times.
Flex is on all the time; you can toggle it on and off whenever you want. There are some very cool features for Constant. Zell is an instant transfer service to transfer my fiat to Constant. I was then able to initiate the loan.
We are looking at other ways to transfer through to us. That Fiat to Crypto ramp is not an easy process – we have done our best to make it simple for users. We are working to automate our manual processes to make things as fast as possible for our customers. Keeping our customer experience good has taken a phenomenal amount of work.