Carnomaly.io, an automotive blockchain and cryptocurrency company, is set to shake up the auto finance industry by allowing cryptocurrency holders to serve as financiers for consumer auto loans.
Through its CarrDefi service, the first-ever decentralized, tiered automotive lending platform, cryptocurrency holders will be able to use their currency as capital to lend to consumers looking to purchase a car, Carnomaly Chief Executive Scott Heninger, told Auto Finance News. Cryptocurrency examples would be Bitcoin, Ethereum and others, including CarrDefi’s own CarrToken, which is currently trading for $0.03.
The new platform functions much like an auto asset-backed securitization: Multiple auto loans are placed into pools differentiated by credit tier — prime, midprime and subprime — and crypto holders or “lenders” put their currency up as capital, which is converted to fiat currency, such as the U.S. dollar, and loaned to consumers looking to purchase a vehicle.
The “lenders” receive their principal investment and interest on the payments, with CarrDefi serving as the lien holder on the vehicle’s title, collecting consumer payments and dispersing them to the “lender.”
“Basically, let’s say you take a Bitcoin, which, for ease of numbers, is worth $50,000, and each loan pool is worth $1 million. [The ‘lender’] owns 5% of that $1 million loan pool,” Heninger explained. “And let’s say we lend that $1 million in capital to 35 borrowers, each with a different rate. If the average rate is 11%, [the ‘lender’] would receive their 5% principle and 5% interest,” he said. The ‘lender’ would be paid back in the form of payment the borrower makes, whether it be a cryptocurrency, traditional debit or credit.
In addition, CarrDefi underwrites the loans using traditional credit histories. However, it will also track consumer payments through its blockchain technology, allowing the company to continue to update its underwriting model and reduce risk, Heninger said.
Dallas-based Carnomaly has been in development for three years and is expected to go live at the end of 2021, Heninger said. The company also has two other arms in addition to CarrDefi: Carnomaly.com, an online marketplace for vehicles, and CarrChain, a vehicle history report powered by its blockchain technology. The company is also looking to create a blockchain credit report, Heniger told AFN.
Since March 2020, Bitcoin has increased 385% to $37,702.22, and Ethereum has increased 806% in the same time period to $2,342.43, as of 5:05 pm ET. Bitcoin has a market capitalization of $705.45 billion, and Ethereum has a market capitalization of $272.40 billion.
Editor’s note: This is the first part of a series on cryptocurrency in the auto finance market