Chinese exchanges have discovered another model in their quest to add new platform services: fiat currency-based peer-to-peer (P2P) loans using bitcoins and other digital assets as collateral.

While most such services are aimed at large bitcoin holders who wish to make use of their holding’s value without actually selling, some exchanges allow mortgaging of other assets like litecoin, car registration and even telephone numbers.

Unlike bitcoin-related P2P lending platforms in other countries, such as BTCJam, these Chinese services do not actually lend digital currencies. Instead, users borrow and lend fiat currency only.

One such service is Yuanbao.com, operated by a partnership between developers of the altcoin ‘yuanbao’ and exchange BTCTrade. Yuanbao.com offers loans in Chinese yuan (CNY) to borrowers prepared to leave either bitcoin, litecoin or yuanbao (the coin) with the exchange as collateral.

Borrowers set terms

Borrowers may then borrow up to 60% of the digital assets’ value in CNY. Borrowers also set the terms of the loan, including timeframe (15 days to one year) and interest rate, which is usually between 10% and 30%. Their loan proposal is then posted on the platform for lenders to consider.

Lenders accept a loan with conditions most suitable to their needs and decide how much to lend (this enables borrowers to borrow from multiple lenders, staying within an overall limit).

Borrowers are taking on a degree of risk by using such assets. If one does not pay back a loan on time, or the assets depreciate in market value to a certain point, those assets are transferred to the lender to cover their loss.

Anonymous borrowing

Yuanbao.com spokesperson Robin Guo said lenders come from all backgrounds, drawn by the attractive return rates and the added security provided by the digital asset mortgage.

Borrowers would generally come from the digital currency community and are not asked any questions, so long as they provide sufficient digital assets to back up the loan.

Guo said:

“They could be mining equipment producers, mining pool owners, traders, etc. Basically, anyone who has digital assets and doesn’t want to sell them or is not happy with the current coin market price, can be our borrowers.”

Paying electricity bills at a mining operation was just one possible reason for borrowing money, Guo added.

Yuanbao.com is not levying additional fees on the loans for an initial period as a promotion to attract new users. It does, however, charge a standard 0.5% fee (in CNY) to withdraw fiat currency to a bank or payment service provider.

Guo said the service had proved “very popular” so far, with at least 2.5m CNY loaned since the platform launched on 12th September.

Creative competition

Other similar P2P loan services have recently launched in China, including Dangpu by ‘big three’ exchange Huobi, and 8R.com from exchange CHBTC in partnership with Shenzhen BaRong Internet Financial Services Co Ltd.

Dangpu (which is Mandarin for ‘pawn shop’) currently offers bitcoin-backed loans under a model nearly identical to Yuanbao.com, and is planning to expand the service to litecoin and other digital assets with good market liquidity in future.

According to its website, Dangpu has lent and borrowed a total of around 5m CNY since launching the service a month ago, with one loan being issued at 1.5m CNY.

Lucky numbers

8R.com gives an idea what those other assets might be offered, allowing collateral use of bitcoins, litecoins, and auspicious vehicle or phone numbers. The platform, according to a CHBTC spokesperson, has processed 1.414m CNY in loans since launching on 12th September.

Betty Zhang, of Chinese digital currency news site Bitell, explained that phone and car registration numbers featuring certain numerals were of high value in China, especially if they occurred several times in a row.

“That’s a typical Chinese characteristic,” she said.

“Six, eight and nine are lucky numbers in China. In Chinese, six means everything goes smoothly, eight represents fortune and wealth, while nine symbolizes eternal and supreme right. It used to be a royal number which could be used by the emperor exclusively.”

People will pay a lot more to obtain such numbers and they are considered assets of value which can be mortgaged – at least by China’s digital currency exchanges, if not by its banks.

Money lending image via Shutterstock