Published on Feb 21, 2020
The Populous online platform was founded in 2017. It is intended to enable P2P payment of invoices. Populous is the first and only ethereum based platform specifically designed to cater to invoice and trade finance.
Populous (PPT) currently #25 in market share is moving into business lending via the blockchain to carve out a portion of the $3 trillion alternative business lending market.
Alternative financing is a term used to cover various lending practices such as invoice financing or capital deployment. Invoice financing is a method for a small to medium size company to sell a list of accounts receivable for currency at a reduced rate. This might sound odd selling a full priced asset at less than full value but the purpose is to receive payment sooner rather than waiting for payment. Many small and medium size companies need working capital while growing and this market thrives because of it.
Currently the only options are for companies to approach banks subject to regulation which can vary from country to country. If the banking industry is not interested or to complication the companies can use private investors which can come with steep discounts or interest rates to full value of the receivable accounts.
Populous seeks to revolutionize this practice by allowing borrowers to sell invoices and buyers to purchase them worldwide using digital coins called pokens maintained on a ledger system based on Ethereum’s blockchain. Using established technology allows for smart contracts which suit this sort of alternative lending. Smart contracts allow for execution of a contract based on specific criteria automatically once the contract is set.
The benefits for this technology are many. First it allows much faster execution of financing as the market for sellers and investors is much larger than locally available banking. The market is only limited by an internet connection and the number of buyers willing to invest. Once the seller builds an auction, buyers can choose to invest by placing their pokens into the contract. When the criteria for the contract is met it is executed and the seller receives the currency automatically.
Fees for executing contracts are much lower than using traditional banks or financiers. Ethereum has much lower transaction fees than Bitcoin making the transfer of pokens much smaller than typical wire transfer fees using classic banking transfer methods. This helps with the international buyers and avoids the loss of capital to banks.
The transfer occurs much faster than with wire transfers or load funding. The blockchain transcations on Ethereum’s network take seconds to minutes to execute rather than days waiting on loan documents or international wire transfers which could requiring changing currencies. This allows access to capital for the sellers much faster than classic banking.
Vetting occurs using well known standards for sellers. Those familiar with business and investment lending will recognized XRBL and the Altman Z-score which Populous uses to vet sellers . By using accepted vetting methods buyers can choose the risk level they are comfortable lending to and returns required for associated risk. Discussions of these terms and methods for calculating can get quite complicated but a basic review is provided in the Populous white paper which is available at their website.
The current limitation to growth for Populous is the limited availability of liquidity. With a current market cap of $400 million there is money to lend but if companies cannot extract that value to fiat currency the market cannot grow. Coinmarket cap reports market volume of just under $1.2 million or about 1/3%. This limits the ability of sellers to cash out the pokens for fiat to run a business. At the same time this limits buyers ability to reap profits outside of pokens. The out is to trade for other currencies lite Bitcoin, Litecoin and Ethereum at the expense of transaction costs.
