Major centralized crypto-for-fiat lenders have failed due to price-related liquidity crises. There are other crypto-for-fiat lending solutions that do not face a similar risk. Pool-to-peer (“P2P”) lending platforms such as Compound, AAVE, and ReserveLending do not have the same liquidity requirements as centralized lenders because all borrowings are over-collateralized. And when that’s not enough to mitigate the risk of loss, liquidation bots are still around to clean up most of what’s left.
The driver of centralized lenders’ liquidity crunch is cost. The costs of centralized crypto lending are its biggest flaw, and bull markets tend to hedge that flaw very well. The costs for them start at the beginning. The customer acquisition funnel from borrower lead to funded loan doesn’t have a lot of leads to feed to the top. Unfortunately, this is due to the newness of the crypto lending landscape, and there are a limited number of people who meet the criteria. There is no inexpensive way to market directly as there is in other types of loans.
Curiously, capital costs for centralized lenders are higher on crypto loans than current unsecured loan rates. Securing and then mortgaging collateral is a tactic used by centralized crypto lenders to offset these costs. With P2P lending, the APY of the borrowers is what sets the interest rate for the lenders. There is little to no overhead, so all the traditional costs backed by centralized lender rates don’t exist in the P2P world.
If and when appropriate and reasonable hedging options, a broader lending base, and reasonable cost base of capital can stabilize and normalize centralized crypto-for-fiat lending, meltdowns as we have seen recently should become rare. . In the meantime, safer depositing, earning, and lending comes in the form of pool-to-peer DeFi.
A new form of custody and the role of the bank
Traditional custodians control risk by holding client assets and then transferring those assets only on the client’s instruction. Execution risk is present and, as we recently learned with Coinbase’s SEC filing, the insolvency of a custodian may result in the assets held being treated as assets of the insolvent entity. P2P offers a solution here too.
ReserveLending+, the flagship institutional P2P product of the unFederalReserve from tech entrepreneur Howard Krieger, is a fork of the popular Compound protocol. Noncustodial in nature, asset holders never relinquish control, but a custodian always plays a crucial role. Rather than holding client assets, Aegis Trust Company, a qualified custodian, participates as a signatory to the smart contracts governing the platform itself. By requiring changes to be approved by the custodian, a major attack vector for P2P platforms is mitigated.
“From our first conversations, we recognized that Aegis is special,” said Residual Token CEO Howard Krieger, “We are grateful that the Aegis Custody team took the time to understand our needs and craft an arrangement that creates, in our view, a premier method for secured lending between US-based companies.
Incorporating a depository into the main product trunk provides protection without adding inefficiency. The same build can be integrated into any noncustodial crypto lending platform today.
Serra Wei, founder and CEO of Aegis Custody, aimed for her startup to become the go-to digital asset custodian in the US, Hong Kong and Singapore. “DeFi enables asset transactions to become frictionless. Additionally, assets are made more liquid on the blockchain,” she said.
Additionally, ReserveLending+ only accepts users who are customers of unFederalReserve Banking Partners, NextBank, International (“NextBank”), a Puerto Rican IFE bank. NextBank operates under the laws of the Commonwealth of Puerto Rico. NextBank is licensed under Bill 273 by the Office of the Commissioner of Financial Institutions (OCIF) and currently offers concierge banking services and lending products to successful entrepreneurs and businesses.
Alternative investments turn to crypto for new capital
ReserveFunding, a FederalReserve’s alternative asset to high net worth crypto individual bridge allows qualified individuals to invest in private transactions without having to liquidate their digital holdings first. The latest fund to take advantage of this new channel is Trivium2, a self-proclaimed “three-dimensional fund-of-funds”. With Atipana Capital before it, Trivium2 seeks to leverage the efficiency of on-chain data transfer while delivering non-Ethereum correlated returns to people who currently hold crypto with these diamond hands.
Trivium2 is a direct feeder fund of the Alumni Ventures group, the most active venture capital fund in the world today, participating in a variety of crypto-related projects.
One of the ways that another alternative fund, ReserveFunding – Series 2 (“RFS2”), raises capital is by offering to recognize the value of a token at a much higher valuation than current market prices. In this case, RFS2 will make pro rata distributions to all LP unit holders assuming a price for eRSDL of $0.50/token from its much lower observed price. This contribution structure is used by other funds for other types of non-fiat currency assets, but this method is one of the few times we’ve seen it used in crypto before. Essentially, the fund is saying that the contributed asset is worth well above what the market currency considers. The investor is guaranteed pro rata distributions based on the highest declared value and will be entitled to a larger share of the distributions than the market value would imply. It is expected that more low-volume, low-market-cap projects will attempt something similar in the future.
Buying from a bank just got easier
ReserveDAO is one step closer to buying a bank. The recent community vote blocked GovernorDAO (“GDAO”) as the rail provider for the initial funding round and sale of RSRV. The RSRV governance token will not generate yield, but will provide access to yRSRV, a yield token soon to be generated and produced by an affiliated foundation in conjunction with the ReserveDAO mission. The DAO will then in turn focus on buying a bank or making a strategic preferred stock investment in a US Treasury chartered bank.
About Residual Token, Inc. dba unFederalReserve
In business since 2018, Residual’s team of former bankers, technologists, and compliance professionals explored ways to make crypto lending and borrowing markets safer and traditional markets more efficient. They currently have a handful of blockchain-based software in development available for licensing. Its flagship product, ReserveLending, provides permissionless access to crypto holders so they can deposit, earn, and borrow the best digital assets securely, easily, and efficiently for cash management, hedging, or speculative purposes.
About NextPlay Technologies
NextPlay Technologies, Inc. (Nasdaq: NXTP), parent company of NextFintech, is a technology solutions company providing gaming, in-game advertising, crypto banking, connected TV and travel booking services to consumers and businesses within a growing global digital ecosystem. NextPlay’s engaging products and services use innovative AdTech, Artificial Intelligence and Fintech solutions to leverage the strengths and channels of its existing and acquired technologies. For more information about NextPlay Technologies, visit www.NextPlayTechnologies.com and follow us on Twitter @NextPlayTech and LinkedIn.
About Aegis Custody
Founded in 2018, Aegis Custody operates within the same regulatory frameworks as banks and trust companies. The company supports over 4,000 cryptos, over 14 staking protocols, and a multi-sig wallet approved for DeFi platforms, all under a regulated custody structure.
Company Name: NextPlay Technology
Media contact: Richard Balles
E-mail: [email protected]Website: https://next.bank/
City: San Juan, PR
Country: United States of America
Contact number: 240.398.8319
Company name: Aegis Trust Custody
Media Contact: Serra Wei
E-mail: [email protected]Website: https://www.aegiscustody.com/
City: Pierre, SD
Country: United States of America
Contact number: (email/TG only) – @serrawei
Company name: Residual Token, Inc.
Media contact: Bilal Sanchez
E-mail: [email protected]Website: https://www.unfederalreserve.com/
City: Verona, NJ
Country: United States of America