Crypto lending is booming as investors seek returns. He transformed this business from a niche startup into a billion dollar unicorn in just 4 years. | Currency News | Financial and business news

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Cryptocurrency investors are looking for a return as bitcoin and other coins consolidate.

Chris McGrath / Getty Images

The recent fall in cryptocurrencies has caused investors to look elsewhere in the digital world for exorbitant returns.

Many of them are getting into the fast growing crypto lending industry, which can earn investors much higher returns than the meager around 0.05% banks are offering on deposits.

Retail investors can get crypto “savings” accounts that typically offer annualized returns of between 5% and 12%. The bravest souls can lend to decentralized fundraising projects in the wildest corners of the market and earn several thousand percent.

One of the beneficiaries of the crypto lending boom has been Amber Group, a Hong Kong-based startup that made $ 1 billion after raising funds in June – and after just four years of existence.

Amber offers high frequency and algorithmic trading, derivatives and various other fancy products. But, like many crypto lenders, its basic business model is straightforward. It takes crypto from “savers” who want to lend and lends the crypto to institutions or people who want to borrow it, for example hedge funds selling bitcoin short.

Read more: Co-Founder of First Federally Chartered Crypto Bank Shares Favorite Strategy for Finding the Best Returns in Crypto Lending – Including Specific ‘Handy Fruits’ for Traders

Its products offer returns ranging from 3% to 40% or more. Focused on Asia, it is mainly aimed at institutional investors, but broadens its offer to individuals.

“What we do is basically similar to a bank,” Amber CEO Michal Wu told Insider this week. “Of course, we take a little bit of interest on this ourselves.”

This interest margin represents 70-80% of Amber’s revenue, which could approach $ 500 million in 2021. The company, which manages around $ 1.5 billion, has attracted investment from the company. crypto exchange Coinbase and hedge fund Tiger Global Management. .

Coinbase is getting into the lending game itself. The largest US crypto exchange announced at the end of June the launch of a crypto savings account offering an annualized interest of 4%. Gemini, Bitfinex, and BlockFi are among the many other companies with similar products.

So what’s the catch? Well, if a return is much higher than on a standard savings account, it must be a much riskier investment.

The main danger for retail investors is that these savings products do not have federal deposit insurance. Investors are ceding control of their crypto to relatively new companies, which could run away or go bankrupt.

David Grider of research firm Fundstrat said in a recent memo: “If the lender’s assets are somehow impaired in a sale, when the liquidated collateral does not cover the loans issued, or during a hack, lose funds… or due to mismanagement of the business – users can lose a substantial part of their funds. “

Coinbase has sought to calm the nerves of investors by assuring them that it does not lend to unauthorized third parties. And Wu says the Amber Group only lends to institutions on an oversized basis, which means borrowers need to accumulate more of one asset than they borrow from another.

Wu says crypto finance’s promise of stable returns is attracting a large number of new investors, including retail traders and the very wealthy – and even traditionally conservative family investment bureaus.

Like many other finance-conscious crypto advocates, Wu says he welcomes tighter regulation. “There are a lot of bad guys in this industry, let’s be honest,” he says. “It is in fact preferable that the regulators are more involved from the start of the [companies] who can both innovate and be compliant and truly cope with global regulation will prevail. “

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