The Resurgence of Crypto Lending and its Implications for Sustainable Development Goals

Executive Summary

A new generation of cryptocurrency ventures is reviving the high-risk digital asset lending market, with a notable focus on uncollateralized loans. These initiatives, emerging three years after a major market collapse, leverage innovative technologies like biometric identification and artificial intelligence. While these platforms present opportunities to advance several Sustainable Development Goals (SDGs)—particularly in financial inclusion, poverty reduction, and innovation—they also pose significant risks to institutional stability and consumer protection, challenging the principles of SDG 16.

Advancing Financial Inclusion and Economic Opportunity (SDG 1, SDG 8, SDG 10)

Targeting Underserved Populations

New crypto lending models are explicitly designed to provide financial services to individuals excluded from traditional banking systems, directly addressing key targets within the SDGs.

• SDG 1 (No Poverty) & SDG 10 (Reduced Inequalities): San Francisco-based lender Divine Research describes its model as “microfinance on steroids,” extending small, short-term loans (under $1,000 in USDC stablecoin) to demographics such as teachers and vendors, primarily overseas. This initiative aims to provide access to economic resources for cash-strapped consumers, aligning with targets for poverty alleviation and reducing inequality.
• SDG 8 (Decent Work and Economic Growth): By providing capital to individuals in regions with challenging economic conditions, such as a pilot program in inflation-hit Argentina, these platforms can potentially foster entrepreneurship and support local economic activity.

Innovation and Infrastructure for Development (SDG 9, SDG 16)

Leveraging Technology for Financial Access

The sector’s growth is underpinned by technological innovation, which corresponds with the aims of SDG 9 to build resilient infrastructure and foster innovation.

1. Digital Identity and Verification (SDG 16.9): Divine Research partners with Worldcoin, utilizing its iris-scanning technology to establish a unique digital identity for borrowers. This system prevents defaulters from creating new accounts and contributes to the goal of providing legal identity for all.
2. Blockchain and AI Integration (SDG 9): Companies like 3Jane and Wildcat are building protocols on the Ethereum blockchain for uncollateralized credit. Furthermore, development is underway to incorporate AI agents, as seen in 3Jane’s plans and a partnership between Coinbase and OpenAI, to manage debt covenants and potentially lower lending rates.

Significant Risks and Challenges to Sustainable Institutions (SDG 16)

Concerns Regarding Stability and Consumer Protection

Despite the potential benefits, the operational models of these new lenders present substantial risks that challenge the principles of SDG 16 (Peace, Justice, and Strong Institutions), which calls for accountable and transparent institutions.

• High-Risk Lending Practices: The practice of unsecured lending is inherently risky. Divine Research reports an initial default rate of approximately 40%, which is offset by high fixed interest rates of 20-30%. Such terms raise concerns about predatory lending and financial stability for vulnerable borrowers.
• Lack of Recourse and Historical Precedent: The report notes that in the event of default on some platforms, lenders must coordinate directly to seek recourse. This is set against the backdrop of the 2022 crypto market crash, which saw the collapse of lenders like Celsius and Genesis due to similar high-risk models, leading to significant investor losses and legal action, including a prison sentence for the CEO of Celsius.
• Enforcement Issues: The reliance on selling defaulted loans to US collections agencies, as practiced by 3Jane, highlights the complexities of cross-border enforcement and the potential for limited consumer protection.

The Evolving Market and Partnerships for the Goals (SDG 17)

Mainstream Adoption and Cross-Sector Collaboration

The market is evolving with participation from both new ventures and established financial players, demonstrating the power of partnerships as outlined in SDG 17.

• Market Expansion: While unsecured lending is a small segment, the broader crypto lending market includes major players like Coinbase and Tether. Traditional institutions are also entering the space, with Cantor Fitzgerald announcing a $2 billion Bitcoin financing initiative and JPMorgan reportedly considering lending against clients’ crypto holdings.
• Partnerships for Innovation (SDG 17): The collaborations between crypto ventures and technology firms, such as Divine Research with Worldcoin and Coinbase with OpenAI, exemplify the multi-stakeholder partnerships necessary to leverage technology for development goals.

Analysis of SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article discusses new crypto-lending ventures that provide microfinance to individuals who are typically excluded from traditional banking systems. This directly connects to several Sustainable Development Goals focused on poverty, economic growth, innovation, and reducing inequality.

• SDG 1: No Poverty

  The article highlights ventures providing “microfinance on steroids” to “cash-strapped consumers,” including “high-school teachers, fruit vendors.” This initiative aims to provide financial resources to the poor and vulnerable, which is a core objective of SDG 1.

• SDG 8: Decent Work and Economic Growth

  By offering loans to individuals like “fruit vendors,” these platforms can support small-scale entrepreneurship and productive activities. The expansion of access to financial services, as mentioned with Divine’s loans and 3Jane’s credit lines, is a key driver for economic growth.

• SDG 9: Industry, Innovation, and Infrastructure

  The entire article is centered on financial innovation. It describes new platforms (Wildcat, 3Jane), technologies (blockchain, AI agents), and financial products (uncollateralised USDC credit lines) built on new infrastructure like the “Ethereum blockchain.” This directly relates to fostering innovation and building new forms of financial infrastructure.

• SDG 10: Reduced Inequalities

  A central theme is financial inclusion for those “underserved by ‘traditional institutions’.” The article states that “anyone with access to the internet can get access to our funds,” which points to an effort to reduce the inequality of access to financial services.

• SDG 17: Partnerships for the Goals

  The article mentions several collaborations to achieve these goals, such as Divine Research working with “OpenAI chief Sam Altman’s iris-scanning crypto group World,” Coinbase partnering with “Altman’s OpenAI,” and start-ups like 3Jane receiving funding from venture groups like “Paradigm.”

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the services and aims described in the article, several specific SDG targets can be identified.

1. Target 1.4: By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to … financial services, including microfinance.

   Explanation: The article explicitly describes the service offered by Divine Research as “microfinance on steroids” for “cash-strapped consumers” and those “underserved by ‘traditional institutions’,” directly aligning with this target’s goal of expanding access to microfinance.

2. Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.

   Explanation: While these crypto ventures are not traditional domestic institutions, they are performing a similar function by creating new platforms to “expand access to … financial services for all.” The article notes their target audience is people who are not “regular users of crypto before signing up,” indicating an expansion of financial services to new users.

3. Target 9.c: Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet.

   Explanation: The model described is entirely dependent on digital access. The statement that “anyone with access to the internet can get access to our funds” underscores that the expansion of these financial services is directly tied to the availability of internet and communications technology.

4. Target 10.2: By 2030, empower and promote the social, economic and political inclusion of all.

   Explanation: The focus on providing loans to individuals in places like Argentina, which has “suffered years of steep inflation,” and to those who are “underserved,” is a direct attempt at promoting economic inclusion for populations left out of the traditional financial system.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article contains several specific quantitative and qualitative data points that can serve as indicators to measure progress, as well as the risks involved.

• Number of loans extended: The article states that Divine Research “has extended around 30,000 unbacked short-term loans since December.” This is a direct indicator of the scale and reach of these microfinance services (relevant to Target 1.4).
• Total value of loans: The article mentions that “Around $170mn has so far been lent on [Wildcat’s] platform.” This monetary value indicates the volume of capital being channeled through these innovative financial platforms (relevant to Target 8.10).
• Loan size: Divine offers “loans of less than $1,000 worth of Circle’s stablecoin USDC.” This specifies the micro-level nature of the financial access being provided (relevant to Target 1.4).
• Interest rates: The loans come with “fixed interest rates of between 20 and 30 per cent.” While an indicator of access, this high rate is also a critical counter-indicator that measures the potential for predatory lending, which could undermine sustainable development.
• Default rates: The article explicitly states that for Divine, “default rates for the first loan taken out average around 40 per cent.” This is a key indicator of the risk and sustainability of the lending model and the financial precarity of the borrowers.
• Number of new platforms/partnerships: The mention of multiple ventures (Divine, 3Jane, Wildcat) and partnerships (Divine/Worldcoin, Coinbase/OpenAI) serves as a qualitative indicator of the growth and innovation within this sector (relevant to SDG 9 and SDG 17).

4. Summary Table of SDGs, Targets, and Indicators

Source: ft.com