There's quite a bit of debate in the Bitcoin Investing world about BTCJam. They are without question the largest BTC based peer lending platform and they have the most VC funding. The essence of the debate is whether the Jam are purposefully trying to only earn fees with no intent to eliminate scammers from their platform or not. It's an important question and those of us who have seen how the USD platforms work know that trust in the platform is one of the important keys to being successful. This debate is about how trustworthy BTCJam is as a platform.
To clarify, a scammer in this case is someone who clearly provides false information and a loan listing that they very clearly never intend to repay thus walking away with the Bitcoin. This is easier to do than it is in the USD world due to the pseudo-anonymous nature of BTC and the lack of credit bureau reporting (and subsequent credit score penalties that would result) due to the fact that anyone in the world can get, lend, borrow or run with Bitcoin. It's not just for Americans like Prosper and LC and Americans know a default will be reported to the credit bureaus hurting their scores.
Back to the debate, many believe Jam is just throwing every listing up on their platform to earn fees with little due diligence and/or help for investors. The proof used by this side of the argument, and I have seen this too, is when information on defaulted listings is released, I have personally seen at least one case where it was very clear that the documents were doctored and not genuine. Jam has sullied its name in the eyes of many investors for reasons like this.
Tip for Using BTCJam: Verification of information on their platform is NOT verification, it is only receipt. You should think of any information listed on Jam as not being verified but only being received by them.
I fall on the other side of this debate. It's my view that in an attempt to grow, scale up and provide the revenue, profit and whatever other metrics their funding partners require, that they are simply overwhelmed. Too much, too fast. Considering that they are trying to improve and that with the technological savvy of most of their investors (present company excluded here) their API is so difficult to use are a couple of the reasons why I believe that they are overwhelmed. After all, the developers that put the platform together certainly have the capability to make a fully functioning, organized and well documented API if they wanted to or more likely, had the time to do so if not working on other priorities.
I want to be clear that as an advocate of P2P Lending and Bitcoin, I want BTCJam to be successful. In fact, out of all the platforms where I invest, each month Jam or BitLendingClub (BLC) is my #1 source of monthly returns for my portfolio. Some months I earn as much as 8-10% PER MONTH on Bitcoin based loans and Jam is a positive contributor to those returns.
Jam Starts With Some Stats
One new development at BTCJam in their attempt to improve is the release of some of its statistics. Let's take a look at some of them. First, loan volume.
This is loan volume by number of loans per month and converted back into USD, both monthly and cumulative totals. An important thing to note here is that the loan volume and USD dollar volume nearly doubles just from April to May 2014. The volume of loans from May 2014 doubles again (almost) in August and stays at a level of twice the volume monthly for September and October. Going from just about 500 loans in May to at or more than 1000 for August-November is really fast, exponential like growth. It's also hard to control. Does this confirm my 'overwhelmed' argument about Jam? Maybe
Jam's Credit Stats
Jam has its own credit scoring system but it can be misleading. Why? First, see my tip above about verification versus receipt. Secondly, as soon as a borrower misses a payment, their Jam score goes down. This means that by the time they default, they are an E score but they may have been an A when they took out the loan. Now it will show in the Stats as an E, which is not exactly accurate. Unlike USD platforms, this scoring system is really no indication at all of the quality of the borrower or the safety of investing in them. However, it is the only uniform system across all loans though so let's take a look at 2 different charts from their Stats page.
What's interesting here is that even using their own credit scoring system, the number of A and B rated loans is declining. The percentage of A and B loans in April was almost half, now it's closer to a third. D and E rated loans are down as well and the growing group over time is C loans. What does this mean?
It could mean Jam is encouraging more borrowers with less verified/received info to borrow. It could also mean that they could have adjusted their rates to make C loans more attractive. Remember, unlike BLC who has a reverse auction system, Jam has fixed rate borrowing where the borrower knows the rate they will pay in advance. We don't really know what it means. Those that believe Jam is just throwing all loans up to see if it funds will think that lesser credits are being encouraged to borrow. However, that would also imply that there would be more D and E loans too, not just C loans. In my mind, the result is inconclusive but something to watch.
Now to the chart that outlines returns for investors. Well, it sorta does....
As you can see here, returns are grouped by credit and 3 categories: Safe, Risky or No Category. Sadly, this chart doesn't really tell us very much. There are 2 main types of loans: Bitcoin loans and Bitstamped loans where an exchange rate is fixed between USD and BTC for the duration of the loan. These 3 categories are extremely unhelpful. The only thing regarding 'safe' loans on the Jam site is the Safe Search feature and all that does is filter out loans that are paying an interest rate below the recommended interest rate for their credit grade.
The differentiation between what makes a 'regular' loan versus a safe loan versus a risky loan is not identified anywhere thus making this chart worthless. I do find it interesting that despite the volatility in BTC price over this past year that BTC loans still return higher than Bitstamped loans did. I'm also curious how that can be since the price has been in decline since the summer, which favors stamped loans since they lock in a rate that would be higher than the current price if that price is declining.
BTCJam has made a decent attempt to release some of its statistical information to investors so we can make better decisions. We need to recognize that it is an attempt. The success of that attempt, especially with this investor returns chart, is at best uneven. Those who don't trust the Jam are unlikely to be encouraged by this newly gathered and shared information, yet. However, trust can be regained with some by increased transparency, information and access to it, and other improvements that will reduce default rates and make the site more user friendly. It is a step in the right direction.