MyConstant is one of the leading platforms offering crypto-backed loans to investors. This means it operates at the technological frontier of peer-to-peer lending and with one of the most hyped technologies in many years. In this interview, MyConstant CEO Zon Chu explains how they use blockchain technology to offer loans backed by highly liquid collateral in the form of cryptocurrencies. We also get to hear details about the platform’s management team, ownership structure, the impact of Covid-19, future plans and much more.
From Stablecoin to Crypto-backed Lending
MyConstant started as a stablecoin project (CONST) in January 2019, and in May 2019, you launched your P2P lending platform. Why did you decide to commit to a focus on peer-to-peer lending?
In the beginning, we focused on creating a new kind of money capable of doing more than traditional cash. Our old slogan was, “A more useful money”. In other words, we built our stablecoin to help geolocked economies and fix the inefficiencies of the global financial system.
We soon realized, however, that creating a more useful money only solved half the problem. The stablecoin might’ve saved time, effort, and cut costs, but what about generating value for its holders? How could we help people earn money while protected and supported by the technology underpinning our stablecoin?
Finally, we turned to peer-to-peer lending as an industry in dire need of a shake-up. Simply put, it had a collateral problem which had given the industry a bad rep. If we used cryptocurrency – a liquid, in-demand asset in which we had expertise – to back P2P loans, we could offer investors a bank and inflation-beating interest rate underwritten with blockchain certainty.
How did you come up with the idea to combine digital currencies underpinned by blockchain technology with peer-to-peer lending?
The simple answer is that digital currencies solved the biggest problem with peer-to-peer lending, that of illiquid collateral or no collateral at all.
If there’s no collateral, you rely on the P2P lending platform’s ability to assess the creditworthiness of borrowers. The best underwriting algorithm in the world can’t predict every default, so you’re betting on your borrower behaving as statistically predicted.
If there is collateral but it’s illiquid, you might wait months or years to get your money back. Some P2P lenders, for example, ask for property to back loans – a car or a house, for example. These are illiquid assets – very difficult to sell in the event of a borrower default.
Cryptocurrencies, on the other hand, are easy to sell. There are millions of holders throughout the world and thousands of exchanges upon which billions of dollars are traded every year. Better yet, many of these digital asset holders want to leverage their existing assets to finance new trades.
It was recognition of this overlap that revealed a much better business model for peer-to-peer lending, and in fact, spawned a new industry: crypto-backed lending.
Covid-19 Resilient Business Model
During the last year, most platforms have seen a sizable negative impact due to the Covid-19 pandemic. How has the pandemic affected MyConstant?
Our business model has proven resilient and dependable throughout the pandemic. No investors have lost their principal since launch, despite a number of defaults. We’ve continued to grow at a rapid pace, around 300% month-on-month – likely due to investors seeking alternatives during the challenging market climate.
That said, the pandemic has affected our product roadmap. In 2020, we launched a new investment product called Loan Originator that we later suspended. We’d spent around six months preparing to launch, building bridges between us and our partners, so it was disappointing to cut it short.
However, we have to put our customers first. Launching an unsecured lending product across new markets during a pandemic didn’t seem like the right thing to do. The banks were stockpiling billions in anticipation of a tidal wave of defaults. With that in mind, it didn’t make sense to jump blindly into the market until we were certain it had legs to stand on.
Now the economic outlook is a little clearer, we expect to relaunch a modified version of Loan Originator later this year.
MyConstant’s Ownership Structure
Who are the owners of MyConstant? How did you finance MyConstant in the beginning?
Duy Huynh, serial entrepreneur and computer scientist, is the founder of MyConstant while I run it as CEO. The business began without funding or investment and I’m proud to say it has remained a bootstrapped startup ever since. We have no plans to raise funding in the future.
MyConstant’s Management Team
What is your own background, and how did you become interested in cryptocurrencies and peer-to-peer lending? Who are the other management members of MyConstant?
Before MyConstant, I spent 11 years as full-stack developer, project manager, and technical director for e-commerce and social network companies in Vietnam and the USA. I developed an e-commerce app for Nguyen Kim that was downloaded over 4 million times.
I was also technical director at Viettel Group, where I designed software to provide telecommunications services to 63 million subscribers across Asia, Africa, and the Americas.
I became interested in cryptocurrencies after reading the bitcoin whitepaper. It was an elegant solution to the banking crises at the time and the underlying technology fascinated me.
When I got the call from Duy to work on making money more useful with blockchain technology, I couldn’t say no! Since then, the team and I have been working hard to help people leverage blockchain technology in new and exciting ways, such as crypto-backed lending.
Andy Tran is our Head of Customer Support. He’s an Applied Linguistics graduate of Macquarie University, Australia. If you’ve ever interacted with us, you most certainly will have spoken to Andy or his team.
Chris Roper is our Head of Communications. A former technical writer, copywriter, and communications consultant for various acquired startups and tech “unicorns”, Chris defines the voice of MyConstant.
Claire Dang is our Head of Growth. An International Business graduate, Claire enjoyed a stint at Uber before joining MyConstant as our lead business development manager. Now, she manages an extensive network of partners and affiliates.
Our Head of Finance is My Phan. My Phan has a BA in Business Economics from the University of California, Los Angeles and is a licensed CPA in that state. My specializes in corporate accounting and handles all our finances.
Cryptolending vs. Other P2P Lending Types
What advantages do you see in cryptolending compared to more traditional peer-to-peer lending?
As I wrote above, crypto-backed lending is an evolution of the traditional peer-to-peer lending model. Without the development of cryptocurrencies and blockchain, I imagine P2P lending would still struggle with losses.
The greatest advantage is the use of digital assets as collateral combined with the real use case for borrowing against said assets. If either side collapsed, so would the crypto-backed business model.
Crypto-backed lending currently taps enormous market demand and as the cryptocurrency market matures, I imagine demand will increase. You can always find people who want a good return on their money. However, market forces and regulatory conditions could deter people from borrowing, which is probably the crypto-backed lending market’s biggest threat.
Do you see traditional peer-to-peer lending platforms as your biggest competitors, or are you looking more at other crypto-lending platforms? What do you think sets MyConstant apart from your competitors?
At the moment, I’d say we were competing more with traditional peer-to-peer lending platforms and other alternative investments.
Most crypto-backed lending platforms are quite technical and designed for experienced cryptocurrency investors. They rarely offer a USD option, for example, but will pay interest on invested cryptocurrencies or stablecoins.
MyConstant, on the other hand, focuses on helping new investors enter the crypto-backed lending market. We’re a bridge between fiat and crypto, a middle ground, so to speak, which enables people to capitalize on cryptocurrencies without ever investing in them.
We also prioritize great customer service, and build our UX around what’s intuitive to people, avoiding jargon and complexity where possible.
Our collateral-backed lending model makes us an attractive alternative to traditional P2P lending, while our customer-focused products and content library help investors understand and use our tools to create wealth.
Investing on the MyConstant Platform
Could you briefly explain what type of investment products you offer at MyConstant? How does it work?
We have two primary investment products: Lend USD and Lend Crypto.
Lend USD is a crypto-backed lending product where investors fund lending pools from which borrowers can get loans in return for interest. You can invest in a fixed-term loan of 30, 60, or 180 days and earn up to 7% APR.
Alternatively, you can invest in our instant-access option and earn 4% APY, compounded and paid every second. You can then withdraw your funds at anytime for free.
To invest, you must sign up, pass KYC, and then deposit funds with our custodian, Prime Trust, who will convert the funds to a stablecoin for investing.
The funds are then returned to your MyConstant balance when investments end. When you’re ready to withdraw, your stablecoin balance is converted back into USD and transferred from Prime Trust to your bank account.
Lend Crypto works differently. When customers deposit crypto, they earn interest by supplying liquidity (lending their crypto) to decentralized exchanges. While not invested, the cryptos remain in password-protected hot wallets hosted on a dedicated server to which only senior management have access.
What does the average investor on MyConstant look like?
Most of our investors are from the US. They are between 35 and 60, with some investing experience and usually hold a bit of crypto, too. Many investors choose 30-day fixed terms and then reinvest everything every month, compounding their earnings.
If I decide to place money at MyConstant and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
Our investment options are purposely simple. You don’t choose which loans to invest in – just the term and amount. We then spread the risk across collateral-backed borrowers and other vetted lending partners.
Since we launched in Jan 2019, no investors have lost a cent of their principal or earned profit. All repayments or liquidations have been processed on time, delivering returns to investors at maturation. So if you were to invest $10,000 in two consecutive 180-day investments, amounting to a full year, you’d earn $700.
How MyConstant Handles Risk
Risk handling in cryptolending is different from marketplace lending with loan originators or more traditional peer-to-peer lending as it is backed by up to 200% collateral that is automatically sold if a borrower defaults on a loan. Could you briefly elaborate on this difference to our readers unfamiliar with cryptolending and also explain a little about how you more specifically handle risk at MyConstant?
Crypto-backed lending is similar to peer-to-peer lending in many ways: an investor lends money to a borrower in return for interest, and we, the lending platform, process the transaction on their behalf.
The big difference is in the use of collateral. Loan originators and traditional peer-to-peer lending platforms rarely ask for collateral (and when they do it’s not easily sold) but instead do credit assessments on borrowers.
Credit assessments are statistical analyses and don’t always predict who will default and when. Aside from pursuing legal action, there’s little these platforms can do to recover defaulted funds for investors.
At MyConstant, we don’t do any credit checks. Instead, we ask borrowers to stake up to 200% of their loan amount in cryptocurrency as collateral. If the borrower defaults, or their collateral falls too much in value, we sell their collateral to repay the investor’s principal and earned interest.
Why cryptocurrency collateral?
Because it’s easily sold at a moment’s notice. This is important as cryptocurrency prices are volatile and we need to return the full amount due to the investor.
However, borrower demand is far from consistent at MyConstant. As such, we don’t always have a collateral-backed borrower behind every loan. Instead, we might reinvest investor funds in other trusted lending platforms and cryptocurrency exchanges.
This means that investing on MyConstant is similar to all investing – it carries risk and you should always use caution and diversify.
If the unlikely event should occur that MyConstant goes out of business. What will happen to the investors’ money?
There are multiple factors at play here so I can’t give a definitive answer, but as we use a third-party custodian, we expect they would assist in returning uninvested funds to customers.
As for invested funds, we currently keep an offline record of all transactions and could employ the services of the administrator to return these funds to the affected parties when the loans mature.
We’d always try to maintain our site and infrastructure until all loans were settled. Without knowing the exact reason behind the business’s closure, it’s impossible to say for certain.
The Future of Cryptolending
What do you think the future of cryptolending will look like? Which challenges do you see for the industry in the coming years?
I believe the outlook for crypto-backed lending is positive, especially as the cryptocurrency market is maturing.
However, so much hinges on borrower demand, which in turn depends on a supportive regulatory environment and the underlying security of the cryptocurrency market as well as the cryptocurrencies themselves.
The industry’s biggest challenge will be regulation. If governments crack down on cryptocurrencies, all connected industries will feel the pain – including crypto-backed lending.
The other challenges will be scalability and security – how to maintain solid networks over which cryptocurrencies can be traded and used without ratcheting up fees or slowing down transactions.
That said, there are thousands of talented people working on fixing these problems, and I believe it would be hard for governments to reverse such progress, so I’m optimistic that they’re around to stay. And so, therefore, will crypto-backed lending.
The Future of MyConstant
What is MyConstant’s strategy for the coming years? Have you planned any new initiatives? What is your vision for the future?
Our vision is to become a permanent fixture of people’s wealth plans. To give everyone inflation- and bank-beating interest rates, a real opportunity to achieve their financial goals.
As well as investing, we hope to help people manage their money through budgeting, spending, and other initiatives. We might even one day have a debit card!
MyConstant is just one example of the emerging fintech landscape that’s shaking up traditional finance and it’s exciting to be a part of it.
If we look ten years down the road and MyConstant no longer exists: What went wrong?
I imagine the US government must have banned cryptocurrencies completely – either that or some fatal flaw emerged in the underlying technology to make them no longer a viable asset.
As a result, with little to no borrower demand, no incentive to trade cryptocurrencies, and no legal bridge between USD and crypto, our investors would have had no-one to invest in.