A trend is beginning to emerge in my journey to learn about loans against .eth names. Borrowers that end up in default have typically had no funds on hand at the time they borrowed in the first place. While correlation does not mean causation and the available sample size to draw a statistical conclusion is small, this emerging pattern is not surprising.
If the borrower does not have the funds on hand to repay the loan at the time the loan is made then the lender is left hoping that the borrower either has a good investment strategy to generate a return in excess of the interest charged or that the borrower will just come in to some money and make good on paying. Effectively, the lender is stuck with the traditional question about whether or not the borrower is credit worthy of the loan. Sounds a little bit like the regular lending business! Or, since there is collateral involved, the lender can look at the transaction like a hard money loan and just make an offer that is far less than the collateral is worth. If there’s a default then so be it, but that takes us back to the earnings potential of these names. There’s nothing uniform about ENS names. They’re all different and there’s an infinite supply of them which means this biz isn’t easy!
In the meantime, if one is making an ENS loan, be sure to check the wallet balance of the borrower before making the offer. If they don’t have any funds now, they may not have any funds when it comes time to pay either.