- Many underbanked Americans use cryptocurrency due to distrust of traditional banks and find crypto easier for certain transactions.
- Crypto lending currently relies mainly on overcollateralized loans, limiting access for those without existing assets.
- New protocols like Wildcat Labs and 3Jane are exploring undercollateralized lending, but challenges remain, especially for the unbanked.
- Borrowers with real-world credit scores can access loans through some platforms, but connecting bank accounts is often required.
A new report from crypto venture firm Paradigm highlights how cryptocurrency use expands financial access for America’s underbanked population. Based on interviews with 11 crypto users, the report finds widespread distrust in traditional banks as a reason for adopting crypto. The users described issues such as delayed transactions, account freezing, and difficulties with cross-border payments. One respondent noted crypto transfers enabled him to pay quickly for emergency medical care for a relative in West Africa.
Despite growing adoption—17% of U.S. residents have used crypto according to recent data—the sample represents a very small fraction of users. The report’s definition of underbanked, meaning banked individuals who utilize nonbank products for core financial needs, is broad. For example, using payment apps like Venmo could fit this category.
Traditional banks provide credit services crucial for buying homes and starting businesses, a feature crypto currently struggles to replicate. Most crypto lending protocols require borrowers to provide assets worth more than the loan amount, known as overcollateralized lending. This limits access, as undercollateralized lending in decentralized finance (DeFi) is minimal, with just about $14 million in assets, compared to $64 billion in total DeFi lending value locked according to DefiLlama data.
Some newer platforms are addressing this gap. In September, Wildcat Labs raised $3.5 million to support peer-to-peer undercollateralized lending aimed at increasing credit access, though it does not allow individual borrowers or conduct credit checks. Another platform, 3Jane, has seen its deposits grow nearly tenfold to $19 million by offering loans backed by real-world credit scores. However, borrowers must link their bank accounts, which limits use among the fully unbanked.
These developments suggest progress toward making crypto lending more inclusive, but a full alternative to traditional financial services for all underbanked users remains a work in progress.
For further reading, see Paradigm’s report, Pew Research data, Wildcat Labs funding announcement, Wildcat Labs overview, and 3Jane growth statistics.
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