Zac Prince, the founder and CEO of BlockFi Lending LLC, a “secured non-bank lender” focused on providing cryptocurrency-backed USD loans to digital asset investors, has argued that “we are [transitioning] from a painful [crypto] bear market into an undecided market.”
Prince, a former SVP at Cognical, a New York-based firm specializing in the consumer lending business, told CryptoGlobe that “overall [his firm] remains incredibly bullish on the sector and believes” the bitcoin (BTC) price will be “between 25-200% higher at the end of 2019 than [it was] at the beginning of the year.”
Comparing Crypto-Backed Lending To Traditional Fiat-Based Loans Business
Commenting on the growth and development of crypto-backed lending and how it compares to similar services in the traditional financial markets, Prince remarked: “Debt and credit are critical pieces of financial infrastructure in traditional markets and we believe that the same thing will be true for crypto.”
Going on to share his past professional experience and how it helped him launch his current company, Prince told CryptoGlobe:
Prior to starting BlockFi, I was in the online lending sector, which started at the “Peer to Peer” (P2P) lending sector. I think there will be similarities between the evolution of that sector and the crypto sector – though I think crypto is much more of a game changer and has a larger addressable market. In the early days of P2P lending, there was a big rallying cry against banks and institutions – and the idea was that you could deliver credit via an Ebay style P2P model more effectively.
Ultimately, the sector quickly shifted to being dominated by institutional capital providers and you now have companies like Goldman Sachs creating a very challenging competitive environment for some online lenders as a result of their Marcus platform. I think crypto will go through a similar evolution and some of the key business strategies that enable companies to scale in the online lending world will work for companies in the debt / credit markets of crypto.
“Key Business Strategies That Enable Companies To Scale”
According to Prince, the core business strategies that help financial service providers in scaling their operations include “having strong institutional connectivity and funding sources, a relentless focus on customer experience (UX), and a platform that delivers a suite of products which create a sticky relationship with your clients.”
Notably, BlockFi recently began offering up to 6.2% interest on deposits made in major cryptocurrencies including bitcoin (BTC) and ether (ETH). The Manhattan, New York-based lender also managed to attract $25 million in total crypto deposits in only two weeks.
However, BlockFi’s terms of services (TOS) state that the firm can change the amount of interest it pays to customers on their outstanding deposits. Prince explained this was necessary because BlockFi is not yet an established business and the firm recently slashed its interest rates on what it qualified as substantially large deposits (500+ ETH or 25+ BTC).
When questioned about how he is planning to create a balance between sustainability (helping the company make progress) and complaints or dissatisfaction from clients – when interest rates are changed, Prince said:
This will be a bit of a moving target with the key variables being market conditions, BlockFi's customer acquisition targets, capital availability, and competitive environment. Fortunately, we haven't seen a material outflow of deposits as a result of the first change and our client numbers and balance numbers continue to grow rapidly.
Responding to a question about what might be the best use cases for blockchain technology, Prince noted:
[Distributed ledger technology allows us to implement] built-in auditability and 24/7 system reliability. I think the most powerful elements are the creation of a digital asset that can compete with fiat currencies for market share and the global accessibility of blockchain assets.
Stablecoins Might Have A Larger Market Cap Than Bitcoin
When asked about the potential of stablecoins in the nascent crypto industry, Prince said:
Stablecoins, I think [are] a reputable “Dollar Coin” [and they] will have a larger market cap than BTC at some point in the next five years. I think that this adoption is bullish for BTC. I [also believe] that intransparent and “pegged” stablecoins will lose in the market vs reputable / dollar backed alternatives.
According to Prince, security token offerings (STOs) will be useful as there is “a large market for securities that has traditionally been highly constrained geographically and [it has] lacked efficient global retail distribution. I think that the biggest STOs will be the same as the largest existing securities. As a US consumer, I scratch my head a bit around the ideas behind some of the early STOs as they are generally things that are already accessible to me as an accredited investor.”
So, I'm not sure what the value of tokenization is. If you can either 1. tokenize every unique asset or 2. leverage tokenization to provide better distribution for the issuer of better access to buyers – then I think you have a strong value proposition.