Another high-profile P2P lending scam should give pause to Chinese domain investors.
Remember those videos of the Chinese super bus making the rounds on social media a few months ago? The bus was designed to travel above car traffic on the street below.
Well, it turns out it might have been just one big peer-to-peer (P2P) lending scam.
According to a Bloomberg article published this week, the promoters of the bus borrowed money on a P2P lending platform and promised a 12% return to investors. The article goes on to explain the rise of P2P lending in China, much of which has essentially been a ponzi scheme.
I have concerns about the Chinese market for domain names also being underpinned by P2P lending.
Hua Lian, one of the co-founders of the China.vc coffee shop, recently explained that people could invest in domain names without learning about domain names. He said, “…you don’t have any risk because you don’t own any domains…” and that the returns are guaranteed. He claimed people could earn 20%. (Watch starting at 5:30 in this interview.)
Not everyone thinks it’s a house of cards, and it sounds like some platforms are lending money in a smart way. Simon Cousins and Raymond Li of Allegravita discussed P2P lending and its role in the Chinese domain name market on DNW Podcast #95.
4.cn’s lending platform has doled out about $30 million in loans, Li said. But it only lends a small amount of the value of the domain name so that it can protect itself. If the platform lends 50% of the value of a liquid domain, it’s still safe if values are cut in half. It also lends money short term, such as 3-6 months, which reduces its risk.
Still, it’s fair to be concerned when someone says people can start investing in domain names and earn 20% guaranteed. Someone will get stuck holding the bag.
We saw this on a somewhat smaller scale in the U.S. last decade as the economy and PPC collapsed. A lot of domainers borrowed money to buy domain names and ended up deeply in debt.