Bitcoin, digital assets that are changing the face of the business credit market

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It is telling that the person who manages $ 9 billion in outstanding loans claims that Bitcoin is one of the best forms of collateral for all types of debt instruments.

That’s according to – among the sources Crypto Investor spoke to for this story – Matt Ballensweig, head of institutional lending for crypto trading company and lead broker Genesis. And unlike something like a house or a vehicle, Ballensweig said, volatility is easier to digest because Bitcoin can and does rise in value.

“If you really think about traditional loans against collateral, it could be against a house, it could be against intangibles like property, it could be against other securities or illiquid fixed income instruments,” Ballensweig. “With bitcoin as a collateral asset, yes that value will move relative to the underlying loan value, but it is very liquid.”

Genesis represents one of the largest players in the rapidly growing institutional crypto lending market. The domain also includes DeFi protocols like Aave, MakerDAO, Compound, and newcomer Maple Finance, which launched its decentralized business credit marketplace in May. The New Jersey-based operation has already seen its first cash pool grow from $ 17 million to $ 37 million.

Genesis ‘Institutional Loans Office, launched in 2018, has grown into a 40-person team – representing almost a third of Genesis’ total workforce – with around $ 9 billion in active loans outstanding to 300 hedge funds, wealthy individuals, mutuals and family offices.

The staff also have Wall Street credentials. Ballensweig, for example, joined Genesis four years ago after working as a senior analyst at Bridgewater Associates and Fidelity Investments.

The Genesis office lends a mix of Bitcoin, US dollars and stablecoins, along with around 35 other digital assets to clients, most of whom are based in the United States. But foreign customers account for around a third of Gensis’ lending business, with particularly high demand from Asia, and this segment is growing.

In fact, the company recently opened an office in Singapore and this month appointed Satbir Walia as regional manager for Asia-Pacific. Ballensweig said the company continues to build the team there “to have boots on the pitch and increase our presence”.

“There is now a lot more institutional interest, in terms of lending dollars against Bitcoin, from large corporations and banks that weren’t really active in the lending market about a year ago.” , did he declare. “Another theme is the continued interest in borrowing USDC and other stablecoins to arbitrate futures against the stock market.”

Ballensweig said Gensis has a credit facility with Silvergate Bank and is in talks with rival Signature Bank to do the same there. Silvergate Bank has launched a booming book of crypto-based lending.

“We recognize these [crypto and blockchain] companies are going to be several times bigger than they are today, but they will need capital to achieve this growth potential and they are currently not able to access it through traditional financial channels.

But there is still plenty of room in the market for crypto companies who want to handle all of their transactions in the chain. This is where DeFi protocols like Maple Finance come in. Since its launch, the company has funded loans to Alameda Research, Wintermute and Amber Group.

CEO and co-founder Sidney Powell launched Maple in mid-May – with a corresponding white paper, of course – because he’s seen promising cryptocurrency and blockchain startups struggling to prove their potential to the traditional lenders.

Powell worked in securitization and commercial loans at National Australia Bank and fintech startup Angle Finance. In early 2018, he started learning about smart contracts and realized that much of the if-this-then-what logic that was recorded in loan documents could be moved to a blockchain. .

“Our thesis is that we have all these native crypto companies in the market that had very strong balance sheets, were very profitable, had big leads ahead of them and were positive cash flow,” he told Crypto. Investor. “We recognize that these companies are going to be several times bigger than they are now, but they will need capital to achieve this growth potential and they are currently not able to access it through traditional financial channels. “

Powell maintains that Maple doesn’t make riskier loans than its traditional financial counterparts, just that the team has the kind of experience and knowledge that its competition does not have to perform due diligence. And it’s very profitable, with returns of up to 11%.

Powell says Maple is able to do this by appointing a delegate from the pool, Orthogonal Trading, to handle off-chain negotiations with potential borrowers before they come up with a new loan and initiate the transaction from the cash pool of Maple.

But he expects this knowledge gap between DeFi protocols – and the resulting lucrative opportunities – to be temporary.

“I think the current returns reflect a market structure that still has inefficiencies. As more liquidity enters the space, returns on capital will drop, ”he said. “I look forward to this point, because as there is more liquidity and lower borrowing costs, it means that the platform will have been able to serve a wider range of clients.”

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