Meltem Demirors: Trillion Dollar Consumer Credit Business is Branching Out Into Crypto

Meltem Demirors, the chief strategy officer at CoinShares, a leading cryptocurrency treasury management firm, recently posted an informative thread on Twitter in which she noted that consumer credit is a “massive business.”

Demirors, a mathematical economics graduate from the prestigious Rice University, pointed out that “US consumers hold $4 trillion in mortgages, student loans, auto loans, credit card debt, and more.” She added that cryptocurrency-based credit began with companies such as BTCjam, a globally accessible peer-to-peer (P2P) bitcoin lending platform, and RipioApp, another crypto-focused lender.

BlockFi, Compound Finance are Among Top Crypto Lenders

According to Demirors, there was “an explosion in crypto credit products” in 2018 as there are now firms including BlockFi, which lets users take advantage of their digital assets without having to sell them. Companies like BlockFi offer products that are similar to LendingClub, which is America’s most established “online credit marketplace”, Demirors explained. However, BlockFi’s lending services use bitcoin (BTC) as collateral instead of fiat-based assets.

Going on to mention other crypto-related lenders, Demirors noted that the Dharma Protocol has been designed to facilitate decentralized lending, meaning that “users connect without an intermediary to offer crypto (coins) as collateral for credit (a loan).” Other P2P lenders include MakerDAO and Compound Finance, both of which have been developed on Ethereum.

Acknowledging that all these services are “cool”, Demirors asked “who has enough crypto to lock it up for cash?” She argued that “most likely, investors” who’ve made substantial investments in the crypto space would be more inclined towards using digital asset lending markets “as a way to [leverage] existing coin positions to buy exposure to other coins.”

However, Demirors asked “what happens when 5%, 10%, or more of the circulating supply of a coin is locked up?” At present, at least 2% of all ETH has been locked up (most of it in the MakerDAO ecosystem) and about 10% of Augur’s REP token has also been locked in various contracts. According to Demirors, it won’t be “pretty” when users try to access the collateral that has been locked up.

Bitcoin Lending Must Become Trustless In Order To Attract Major Investors

Caitlin Long, a 22-year Wall Street veteran who is now more focused on the crypto and blockchain industry, believes bitcoin lending is not yet “trustless.” In a detailed post on Forbes (published in January 2019), Long argued that cryptoassets “need financialization to succeed.” She explained that “financialization requires the development of markets for lending”, however Bitcoin’s protocol has not been designed to allow effective crypto lending.

“Major fiduciary institutional investors” will only make substantial investments in cryptos if digital asset markets are developed in a trustless manner - which would allow businesses to “borrow money to finance investment in … enterprises," Long noted.

Coinbase Becomes First 'Pure' Crypto Firm to Become Visa Principal Member

Francisco Memoria

San Francisco-based cryptocurrency exchange Coinbase has become the first “pure” cryptocurrency firm to become a Visa principal member.

The membership was, according to Forbes, officially awarded in December 2019, but it wasn’t revealed to the public until today via a blog post published by the exchange itself. The membership will allow Coinbase to cut expensive middlemen when it comes to the issuance of its debit card, which lets users pay with cryptocurrency wherever Visa is accepted.

Notably, the principal membership also gives coinbase the power to issue debit cards for other companies, although the cryptocurrency exchange claimed it isn’t planning to issue them for others anytime soon. Visa, Forbes reports, has confirmed it granted Coinbase the principal membership, but clarified the firm itself isn’t accepting cryptocurrencies.

Using the membership, Coinbase is set to issue a new version of the Coinbase Visa card, which was initially launched in April 2019 with the financial services firm Paysafe Group Holdings, which charges a fee for its service. This new version could reduce the fees Coinbase’s card is currently charging users as it cuts the middlemen. If fees are reduced, existing card holders will have to re-apply to receive a new card.

Zeeshan Feroz, CEO of Coinbase UK, which received the membership, noted that users’ BTC holdings have always been seen as illiquid “because you have to sell them, you have to go through a process, withdraw the money, and then spend it.” The card’s goal, he said, is to change that:

What the card is trying to change is the mindset that crypto is tucked away, takes two days to access, and can actually now be spent in real time.

The Coinbase Visa card isn’t available to U.S. residents and won’t be in the foreseeable future. It is, however, available in 29 countries including Denmark ,Estonia, France, Germany, Sweden, Spain, and the U.K. IT lets users spend nine cryptocurrencies including bitcoin, ether, bitcoin cash, Brave’s BAT, litecoin, and others.

With the membership, Coinbase could make fees charged to companies outside the cryptocurrency space in payments made with its card a new source of revenue, one that depends less on crypto price fluctuations. Feroz acknowledged it’s a possibility, but revealed it’s currently not a part of the firm’s plan as its “primary focus” is to build its services.

Featured image via Pixabay.