While credit unions are often focused on cryptocurrency as an asset—the purchasing and saving— Lamont Black believes they should be focusing on the platform it’s used on—the blockchain—and how they can use that in lending processes.
“Too many credit unions are focused on the tip of the iceberg,” says Black, an associate professor of finance at DePaul University. “Crypto is not just a number that goes up and down. How do we incorporate the technology and the platform so that members are keeping the transaction fees and the process becomes faster and more seamless?”
Black spoke at the 2022 CUNA Lending Council Conference Friday in San Diego. While he spent time explaining the details of cryptocurrency and blockchain, he focused on two ways the new technologies could be used in lending. He didn’t focus on using cryptocurrency as collateral or payment for loans, but rather how the systems could be used.
“Cryptocurrency is super volatile,” Black says. “How do you take the technology from the crypto ecosystem and map it onto lending processes?”
He presented two opportunities to the lenders in the audience:
1. Documentation. Lending processes involve a lot of documents and much of the lending process is managing documents, from creating, storing, managing, tracking, and distributing electronic documents. It doesn’t matter whether it’s a printed piece of paper or a PDF.
“A document is one form of data,” Black says. “We must move beyond the 8 1/2-by-11. Is there a better way to record and share this type of data?”
One option that could be explored is using a non-fungible tokens (NFT) as a record of ownership for physical assets such as real estate or autos that could then be stored in the owner’s digital wallet on the blockchain and could be tracked.
“What is a title? It’s a record of ownership. Why pay for title companies to verify ownership?” Black says. “You could digitalize the ownership with an NFT. While NFTs are digital, the asset behind it can be digital or physical.”
2. Decentralized finance (DeFi) for secured loans. DeFi is finance built on the blockchain, Black says. It offers deposits and loans. “DeFi is secured lending,” Black says. “It’s borrowing crypto against crypto and the loan is recorded in the blockchain.”
When exploring how to use cryptocurrency or the blockchain in the credit union, Black says it’s important to always connect the conversations to members, such as how the technologies will improve digital payments, how it can help consumers manage digital assets, or how blockchain can be used as loan platform.
“Don’t rush into one corner,” Black says. “Consider the different areas that can be explored.”