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RE: Dharma Protocol: Tokenized Debt and Funding Through Decentralized Systems
Hi @devann
Glad to hear from you after a while!
I did a bit of homework on Bitbond STO after reading your comment. Here are some of the main points of difference or concern from me:
- Dharma is a complete decentralized aggregator. It seems Bitbond is a centralised debt issue that accepts cryptocurrency.
- Dharma facilitates loan based on underwriter risk. For example, if the underwriter scrutinized my business' finances, they say we can give you a loan at 7% based on the risk. In BitBond case, they are promising a 4% annual payment no matter what. Since their underwriting doesn't seem to be decentralized, I think they will charge interest at a higher rate than 4% and pocket the spread.
- Clearly stated foreign law is unknown. This is an STO in Germany. Now as I live in India, it will be unclear as to the legality of me purchasing these given Indian securities regulation and current uncertainty regarding cryptocurrency and security tokens.
- Something very fishy on page 24 of their prospectus. "In the case of issuer liquidity, "the investor" would be asked to repay the principal and loan. I really hope this is a misprint given this isn't something even our current corrupt banking system doesn't do. Nobody is ever asked to repay your own money back to the issuer if they go insolvent
Anyway, this is my take away. Hope it was helpful. Cheers!
4% for business debt is not worth the risk, nor is 7% IMO. You can earn a solid 18% ROI right here on steem by investing in and powering up your steem, then leasing it. Honestly the ROI is higher then 18% with the inflation factor and how you get daily payments which can be rolled into more leases. Why would you put money into a company you nothing about like that.
To each their own, but this is very high risk lending. If they could get a real loan they wouldn't mess with this space and the potential regulatory issues. High risk business debt should be paying much higher rates. Go purchase junk bonds in some very large multi national companies and you get paid more then 4-7%.
Depends on where you're speaking from. In India 7% business loan is a great deal. The same goes for Russia, Brazil, and other emerging markets. Talking about USA, France, UK, etc, 7% is too much.
The point is various factors of risk build your interest rate. It includes financials, geography, and your business model. The point of such debt models is to help kill the bureaucracy. From a quick, study Dharma has great potential.
I need to look into Steem leasing more, but I believe the demand as well as supply is insufficient for something like that take off.
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There are tens of millions of SP leased and the rates tend to stay between 18-22% ROI.
7% is not cheap in the US for small business loans. And really not cheap for the type of business that needs cash quickly. I get 24-36% for loans that are used to fill purchase orders. They are designed to be short term 30-90 day loans and the people need cash now to purchase materials or inventory. Anyways lets just say I know way to much about business finance to think 7% interest rates are even kind of a good rate. Heck many fortune 500 companies are paying higher then that rate for their loans.
There are also massive regulatory issues of offering high risk lending opportunities to people who aren't financially educated to understand the risk factors.
Thank you for the insight @pifc
As I said, 7% is great for emerging markets. And it was just an example. As I said, loans will be based on various risk factors. And of course, companies are always free to go through the traditional route if they feel it is more advantageous.
Geography will be a huge part of the risk. The economy of the country the borrower is from will play a role in their potential cash flows. In a country like the USA, the premium will not exist. Where as in India or Poland, it most definitely will.
This is based on the fixed income concept of "country risk premium".
I will start looking into the potential of Steem in this process.
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Good follow up mate.
Hey @reverseacid, thanks for the help. Will check them out again later.