Loan for crypto: Russian pawnshops wanted to accept digital currencies as collateral
Russian pawnshops wanted to accept digital currencies and assets as collateral. This initiative was initiated by the National Association of Pawnshops. The organization noted that the total portfolio of domestic pawnshops in this case may increase 10 times in three years. Experts are convinced that there is a completely rational logic behind the loud forecast. But for the normal functioning of such a market, clear rules and reliable infrastructure are needed. Izvestia reports that it is beneficial to expand the list of assets accepted as collateral.
Expanding horizons
The total portfolio of Russian pawnshops currently stands at about 100 billion rubles. Last year, the total amount of loans from Russian pawnshops grew both due to repeated requests from existing customers and due to the appearance of new borrowers. The National Association of Pawnshops told Izvestia about this.
The organization noted that today there is a request from customers to expand the property accepted as collateral. In particular, we are talking about digital currencies and digital assets. NOL suggested that the appearance of new collateral items will increase the total portfolio of domestic pawnshops 10 times in three years. Pawnshops will be able to work with digital assets by analogy with gold.
"The client brings an offline carrier with digital currencies to the pawnshop, receives money secured, and after paying off the loan, this offline carrier with assets is returned to him," the organization explained, not excluding that the development of technology and coordination of the procedure with regulators may adjust or simplify this process.
Not only cryptocurrencies are offered to allow pawning, but also various tokens, in-game currencies and digital collectibles.
—The use of digital currencies and assets as collateral will significantly expand the possibilities of borrowers, especially in the context of their growing popularity, and will help to increase financial accessibility," the NOL said.
For the financial market, the inclusion of pawnshops in the turnover of digital currencies and assets will mean increased transparency and legitimacy of the turnover of digital assets. Thanks to this step, it will be possible to reduce the risks from illegal transactions and create conditions for the development of new financial products.
By the way, earlier the Bank of Russia supported the initiative to create digital pawnshops, whose operations would be carried out with digital assets. The idea was even included in the roadmap for the development of the pawnshop market.
"Further dialogue between the regulator and the industry on this topic will help develop all the necessary rules for interacting with digital currencies and assets as collateral and ensure the security and transparency of transactions with digital assets," the association concluded.
The editorial board of Izvestia sent a request to the Bank of Russia. No response has been received at the time of publication.
Simple mechanism
At first glance, the idea of accepting digital currencies and assets as collateral sounds almost revolutionary, says Yulia Kuznetsova, an investment adviser in the registry of the Central Bank of the Russian Federation, founder of the online university of Finance. But in her opinion, there is quite rational logic behind the loud forecast of a 10-fold increase in the total portfolio in just three years.
The use of cryptocurrencies and digital assets as collateral may not involve their physical transfer, the expert believes. The pledge of such assets is possible through a transfer to a collateral wallet or an escrow account.
— Until the loan is repaid, the asset is blocked, and if the borrower defaults, the right to dispose of it passes to the pawnshop. In fact, this is an analogue of the classical pledge, but in a digital form," explains the interlocutor of Izvestia.
Another option is to pledge a digital currency or asset — smart contracts or crypto exchanges operating under an experimental legal regime. Lyudmila Gribok, Chairman of the Board of the Regional Pawnshops Association, expresses this point of view in an interview with Izvestia.
— Technically, the transfer of cryptocurrencies as collateral can be carried out by transfer from the borrower's crypto wallet to the pawnshop's crypto wallet. In case of non—purchase, this cryptocurrency can be implemented on the same crypto exchange," she admits.
Mutual benefit
According to Mikhail Khachaturian, Associate Professor of the Department of Strategic and Innovative Development at the Financial University, thanks to the implementation of the idea of a National Pawnshop Association, the population will have another collateral option for which it will be possible to obtain the necessary financial resources.
Such a mechanism opens up an additional source of liquidity for citizens, Yulia Kuznetsova is convinced.
— A person can get money without selling an asset or fixing a possible loss or lost profit. This is especially true for those who hold cryptocurrencies or digital assets as a long—term investment, but periodically need live money," she explains.
Now the owners of such assets, if necessary, can only sell them, recalls Lyudmila Gribok. The expansion of the list of collateral will allow assets to be transferred in exchange for real money.
— It is beneficial for the owners and can help out in difficult times. At the same time, assets may increase in value during their stay as collateral, the Izvestia interlocutor does not exclude.
The advantage is that pawnshops traditionally work faster and simpler than banks — they do not check their credit history and do not require any certificates, Kuznetsova points out.
For pawnshops, accepting cryptocurrencies and digital assets as collateral can be a huge step forward, says Lyudmila Gribok. This will facilitate the transition of the pawnshop market to online.
Using digital assets as collateral will expand the range of pawnshops' services, which will give them the opportunity to increase their activity as a lending institution, Khachaturian believes.
Digital assets for pawnshops are an opportunity for qualitative growth, Kuznetsova is sure. The fact is that their cost is often higher than the usual collateral items, which increases the average check.
At the same time, as the Izvestia interlocutor expects, a new audience will appear from among those who had not previously considered pawnshops as a financial instrument.
"Thirdly, with a well—developed infrastructure, digital collateral can be even more liquid than physical collateral, without storage, expertise and logistics," the financier emphasizes.
System development
Lyudmila Gribok highlights the volatility of their prices among the risks when accepting cryptocurrencies and digital assets as collateral. The price may drop sharply, and the collateral will depreciate faster than the loan expires.
Theft and fraud are also possible, Fungus is not excluded. According to Mikhail Khachaturian, cybersecurity is also an important aspect — the issues of digital asset security and data leakage from pawnshops remain relevant.
The risks of unresolved issues of using digital assets as collateral are among the main ones at this stage, the expert notes. The technical aspects require careful consideration with the regulator, market participants and holders of digital assets, Gribok is convinced.
— In order to perform the above operations, it is necessary to finalize the current legislation. Including in the law on pawnshops, it is necessary to expand the list of property accepted as collateral," she says.
It is important to take into account that in Russia the legal regime of cryptocurrencies remains limited and subject to change, recalls Kuznetsova.
"Add technological and reputational risks to this, and it becomes clear that without clear rules and reliable infrastructure, such a market will not take off," the expert emphasizes.
In general, the idea of securing digital assets is seen by the Izvestia interlocutor as an evolution of financial services. And the main question, according to her, is just how carefully and carefully the initiative will be implemented.
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