For all of the advantages of peer lending, the liquidity risk inherent in this asset class remains it biggest challenge and likely the biggest deterrent for new investors.
When you enter into a loan agreement as a marketplace lender, you’re committing for the defined term of the loan, usually 36 or 60 months.
But what happens when a large unexpected expense arises? Life can be unpredictable, and you may need to access your funds early by liquidating part or all of your invested principal.
Wait or liquidate?
The notes you’re invested in will self-liquidate as they reach maturity, so you always have the option to stop re-investing and wait for your cash balance to build from incoming payments.
Or, to speed up the process, you can list your notes for sale on the Folio Note Trading Platform, Lending Club’s secondary marketplace.
Self-directed secondary market trading, however, is often a tedious and time-consuming process that many investors avoid altogether, making it a limited option at best. The supply of notes can far outweigh buyer demand, and pricing continues to be a challenge.
But the release of Folio’s official API in recent years now makes automated secondary market trading possible, opening up a new opportunity for third-party investing tools to address liquidity.
Beyond automation: Meet your Liquid Match
Liquid P2P recently launched as the newest third-party software solution for Lending Club investors.
Powered by our machine-learning algorithms and patent-pending investing model, we automate the entire P2P lending process including loan selection, diversification, reinvesting and liquidation.
With a strong emphasis on secondary market automation, we target a niche market of retail investors seeking consistent returns and better liquidity outside of the managed-fund approach many other automated tools are turning to.
Liquid P2P not only automates secondary market trading for you, we also offer accelerated liquidity options powered by our Liquid Match model and backed by our Liquid Reserve Pool.
Our patent-pending Liquid Match model harnesses the power of the group to fuel our investing and liquidation processes. As we continuously invest your funds, we automatically match Liquid P2P buyers and sellers first in an effort to boost returns and accelerate liquidity.
What better way to foster a more active secondary market than to automate the trade of notes between users in a seamless way that mutually benefits both sides of the equation?
In a successful Liquid Match transaction, the buyer is invested in a quality loan with a seasoned payment history and shorter time to maturity, while the seller is able to accelerate the time it takes to liquidate her invested principal.
It’s a true win-win.
How Liquid Match works
As we continuously invest and re-invest your available cash, our Liquid Match model automatically matches users with funds to invest with those trying to liquidate notes.
In doing so, we utilize both Lending Club’s primary market, where newly-issued loans are listed, as well as its Note Trading Platform, where previously-issued notes are traded.
It’s a two-sided model that fuels both our automated investing and our automated liquidation processes.
1. Identify buyer and seller
A buyer is any active user with funds to invest (available cash). A seller is any user with an active Liquid Match withdrawal request.
2. Check notes for a Liquid Match
To qualify as a match, a seller’s note must meet all Liquid Match Standards, align with buyer’s investment strategy, AND maintain buyer’s diversification.
3. Trade matching notes on secondary market
For any matching note, we calculate a fair price, list note on the Folio secondary market, and then purchase note on behalf of the buyer.
4. Invest remaining cash
After all Liquid Match possibilities are identified, we then invest any remaining available cash on behalf of buyer.
To do so, we first check the secondary market at large for notes offered a fair price or below that also meet Liquid Match Standards. After that, we go to the primary market and purchase newly-issued $25 notes.
Liquid P2P charges users a 1% fee for any note sold through a standard Liquid Match transaction.
How the Liquid Reserve Pool works
We created the Liquid Reserve Pool as another win-win solution for our users. We are able to offer sellers a way to fully liquidate within a specific time period, while matching a pool of buyers with quality loans at a discounted price.
Funding the reserve
To fund the reserve pool, we periodically invite users to contribute by investing in $1,000-block increments.
These reserve blocks are “stacked” in a first-in, first-out order and used as a liquidity pool to fund Liquid Match +Plus withdrawal requests.
As an incentive to contribute, eligible notes liquidated through the reserve are adjusted to a fair price and then sold to buyers at 1.5% discount.
Liquid Match +Plus withdrawals
In a Liquid Match +Plus withdrawal, the user is able to control his/her timeline by setting an end date for Liquid Match.
After that, eligible notes are automatically liquidated through the Liquid Reserve Pool to meet the remaining balance on the active withdrawal.
Liquid P2P charges users a 2% fee for any note sold through the Liquid Reserve Pool transaction.
Learn more about our fair pricing strategy.