Chain financing: what is it and how does it work?

Few companies enter the market without resorting to external financing. In traditional finance, loans given to companies depend on their borrowing capacity. Is it the same in the world of DeFi?

However, it turned out that the borrowing capacity is not always a reliable indicator of the real financial situation of a company. Focusing mainly on this criterion, traditional banks exclude crypto companies that are nevertheless well able to honor their debts.

Instead of engaging in tedious procedures with banks, companies can turn to on-chain financing and Web3 accounting tools such as Bulla network. As the name suggests, on-chain financing is a system that allows businesses to apply for loans directly on the blockchain.

In other words, it is a crowdfunding system that gives Web3 businesses the opportunity to apply for loans directly from the crypto community.

On-chain financing: the state of the game

Today, Web3 companies, including the metaverseDeFi projects and NFT platforms or Play to Win, face huge hurdles when it comes to funding. In fact, some banks avoid at all costs to fund crypto projects, treating them like lottery or porn companies.

Worse still, even the few banks that allow cryptocurrencies can block or confiscate their customers’ accounts at any time and without any notice. Recently, an Indian bank froze more than 70 BTC, while the South Korean authorities requested the blocking of more than 3,000 BTC owned by Do Kwon.

If Web3 companies can’t even open bank accounts, how can they access traditional forms of financing? And even if a bank agrees to open a bank account in the name of a crypto business, the risk of seizing the funds does not encourage the leaders at all. Similarly, the lack of a well-defined history of fiduciary transactions makes obtaining a loan almost impossible. This is where on-chain financing comes into play.

Chain financing: how does it work?

Chain financing, also known as decentralized lending or crypto, is a form of credit that is requested and received on the blockchain. In other words, instead of going through a traditional financial institution, companies borrow directly from crypto investors. To do this, they deposit their crypto assets as collateral and submit their transaction history to lenders.

Web3: The Internet of Tomorrow — Photo by BeInCrypto

On-chain financing is accessible to all Web3 projects that are excluded from the traditional banking system. This type of loan also offers several advantages to borrowers, including the ability to directly access the history of borrowers’ transactions, etc. Similarly, companies can use their crypto assets as collateral regardless of their borrowing capacity.

Additionally, on-chain lending platforms typically require borrowers to post collateral greater than the loan amount, which reduces the risk of default and protects investors. (or lenders).

Finally, on-chain funding platforms are generally based on fully transparent blockchains. So investors can see where their funds are going and how they are being used.

Web3 in the service of crowdfunding

Accounting software like QuickBooks or Xero are not intended for crypto businesses, as they are not designed for crypto assets and transactions. Therefore, these software cannot track the value of your crypto collateral, nor properly account for on-chain transactions.

Fortunately, there are Web3 accounting solutions that make things much easier for businesses in the crypto sphere. Through these platforms, companies can track their crypto assets and transactions in real time. Likewise, they can at any time provide financial information to their potential investors, thus gaining credibility.

Even better, web3 accounting platforms allow companies to use their networks to raise funds through what is known as crowdfunding on the chainor chain crowdfunding.

Like platforms like GoFundMe, blockchain funding allows anyone with a network to solicit donations and any Web3 business to borrow.

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Traditional finance excludes many sectors, especially crypto. of DeFi Loans can solve this problem — Photo by BeInCrypto

To summarize

Chain loans are a perfect financing option for Web3 businesses. The latter can use their crypto assets as collateral, their transaction history as evidence, and members of their networks as potential lenders.

Disclaimer

All information on our website is published in good faith and for general information purposes only. Any action taken by the reader based on the information found on our website is entirely at his own risk.

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