A lot of loans have been made in crypto, but lenders have not reaped a lot of profit.

That’s the big takeaway from a new report by Graychain, a startup looking to bring credit assessment to the crypto space.

The startup released its first report on the collateralized crypto lending industry Thursday, estimating that $4.7 billion has been lent out over the history of the sector, but only $86 million has been earned back in interest. That’s a 1.8 percent return, despite the fact that loans typically cost borrowers 6 to 10 percent on an annual basis.

“Generally these companies that are doing really huge originations are originating really short-term loans,” Neil Zumwalde, Graychain’s chief technical officer, told CoinDesk in a phone call.

In other words, it’s easy to make the lending sector look stronger than it is by solely looking at originations. A loan can be quickly opened and closed and earn the lender very little because there is not enough time for any interest to accrue.

Graychain was able to accumulate part of its data from public chains where everything is in the open, including MakerDAO, Compound, dYdX and Nuo. But the report notes that 65 percent of the originations have been on Celsius and Genesis, which are private, and less prone to share full information about their businesses.

So Graychain offered the following note of caution in its report:

“A good proxy for the industry’s health is the amount of interest collected. We have estimated this number. We calculated the rate at which many of these loans are liquidated or matured, and applied the average interest rate for each platform.”

Graychain was also able to get some private data from Dharma, Maker, Compound and Unchained Capital. There has also been information shared in marketing materials and public statements by those who did not participate, allowing Graychain to make a better estimate.

Graychain intends to continue to issue this report every quarter.

Sector growing fast

While the report suggests that the crypto lending industry has not been extremely lucrative thus far, in aggregate, it does show that there is a strong demand for the business.

“The lending industry is maturing really, really quickly in this space,” Zumwalde said. “These markets are becoming more mature and people are trusting it more with their assets.”

A few examples of growth from the report:

In the first quarter, Graychain found 5,462 new loans; in the second quarter, there were 18,562 new loans.

Those loans in the first quarter amounted to $64.8 million; in the second quarter, that figure grew to $159.3 million.

The second-ranked public protocol, Compound, started the year with $13 million locked in the protocol and broke $100 million in early August.

That said, the bulk of borrowing has been made by private lenders, which generally offer the better percentage rates. While these companies dominate the sector, they seem to have a very high turnover.

For example, it’s likely that many of these short-term loans from private lenders such as Celsius reflect speculative activity: traders borrow to avoid triggering a taxable event, then make a bet on a token, let it play out and pay off the loan as soon as the short-term bet has played out.

As the report notes:

“From our quarterly analysis, you can see the number of loans originated grew faster than the new addresses and the total origination amount. That means that people are making more small loans, rather than borrowing millions at a time.”

Ben Yablon of SALT Lending and Alex Mashinsky of Celsius speak at Consensus 2019 (photo via CoinDesk archives)