This Outlet Finance Review will help you learn more about Outlet Finance's investment offerings, including how the alternative investments on Outlet Finance are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.
Outlet Finance is essentially an automation layer on top of a P2P lending platform built on blockchain technology. Money you invest via Outlet Finance is converted into what’s known as a “stablecoin” (one whose value is ostensibly pegged to the dollar so that it won’t fluctuate the way other cryptocurrencies do), and then lent out to borrowers through the Celsius Network. Borrowers must provide collateral (in the form of their own cryptocurrency), which is liquidated in the event of a default.
Adventurous investors may find Outlet an interesting way to experiment with investing in the Cryptocurrency ecosystem, but should be aware that compared to many other alternative investments, there is scant regulation, and the underlying ecosystem is still in its infancy.
Is Outlet Finance legit?
Yes, Outlet Finance is “legit” in the sense that it is a legitimate, registered business and a legitimate alternative investment opportunity for individual investors. That does not mean is without risk. Outlet Finance is not a bank, and money deposited is not FDIC insured. Investors should note that Outlet Finance itself does not hold the invested funds, instead partnering with a custody partner called FireBlocks, which includes insurance against transaction and smart-contract failure (which is not the same as insurance against financial loss or default!).
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Types of investments Outlet Finance offers
Outlet Finance automates the process of lending money to borrowers who provide collateral for their loans in the form of cryptocurrency (such as Bitcoin). Money you invest through Outlet is pooled with other investors and then lent out to borrowers.
According to Outlet Finance, most borrowers are “over-collateralized”, meaning that they must put up 120% of the amount they wish to borrow, in the form of cryptocurrency. For example, if someone wanted to borrow $1,000, they would need to provide $1,200 worth of Bitcoin (or another currency), which is held as collateral. If the borrower defaults, or if the value of Bitcoin drops, it’s liquidated and paid out to investors.
What do you get when investing with Outlet Finance?
Money you invest through Outlet Finance is converted into a “stablecoin” called USDC, which theoretically can always be converted directly back to US dollars at a 1:1 rate. That USDC is then lent out to borrowers via the Celsius Network (you could also just work directly through Celsius, though Outlet Finance automates and simplifies the process, similar to what LendingRobot used to offer on top of LendingClub and Prosper).
How does Outlet Finance make money?
There are no fees charged by Outlet Finance directly (they earn money on the “spread” between what is charged to borrowers and what is paid to investors).
Potential returns and cashflow
The interest rate earned on your investment varies, though Outlet targets a minimum of 4.5% APY with an average of 6% APY. Outlet pays interest monthly.
Breadth of offerings on Outlet Finance
Investors are not able to select specific borrowers or specific investment pools. Outlet Finance automatically assembles the investor pools and manages the allocation to borrowers.
Regulatory framework and due diligence expectations
Compared with investments offered through regulatory frameworks like Reg D or Reg CF, investments through Outlet Finance are very loosely regulated, and investors should be aware of the risks involved. While Outlet describes themselves as an alternative to a bank, they are most assuredly not a bank – money you deposit is not FDIC insured.
Outlet Finance itself does not screen borrowers; that is done by Celsius. Note that because the loans are backed by cryptocurrency, there are no credit checks for borrowers.
This review was first published on 01 December 2020.