As we seem to be on the cusp of greater institutional involvement in crypto, the race is on for crypto companies to fulfil the roles that exist in traditional financial markets.
One company trying to do just that is Lendingblock. Founded in 2017, its platform allows institutional investors to lend and borrow cryptoassets - something that occupies an important position in legacy markets.
We spoke with Kelly Pettersen, Head of Business Development and Marketing at Lendingblock about the company, the crypto winter and the potential for institutional investment in crypto.
Can you tell us about Lendingblock and your role there?
Lendingblock is reinventing securities lending, an industry that has always played an essential role in mature capital markets. While 15% of all US securities are on loan generating billions of dollars in income for lenders, some may argue that for an industry that is critical for the efficient functioning of capital markets, it remains quite an opaque market, one that is in need for greater transparency.
Through Lendingblock’s open and automated exchange, institutions are able to borrow and lend digital assets for generating interest income or facilitating specific asset management strategies such as hedging or arbitrage or use the assets for working capital purposes.
In my role as Head of Business Development and Marketing, I focus on building relationships with clients and partners while also working on generating brand awareness of what Lendingblock is doing and how it is differentiated from the other players in the space.
What sorts of people or businesses use Lendingblock?
Lendingblock caters purely to the institutional market. The minimum size of a loan on the Lendingblock exchange is $100,000 equivalent in a specific crypto asset. Some examples of the types of firms that are using the Lendingblock platform include hedge funds, exchanges, market makers, custodians and trading firms.
How have the lending rates changed since Lendingblock launched?
Rates on the Lendingblock platform are set by supply and demand of the market and therefore are not set by us. The market is currently seeing rates anywhere from 4.5% to about 8% depending on the asset and whether you are making or taking a loan.
What are the pros and cons of paying the interest out in your own token - LND?
LND, the Lendingblock token, is fundamental to using our platform, as both the fees and the interest are paid in LND. As we want to make sourcing LND as easy as possible for our clients, Lendingblock will be providing clients the token OTC. As the token is purely a utility, as our platform gains traction and begins to achieve sustainable growth, there could be a correlated benefit for LND investors.
Is the 'crypto winter' over?
In our opinion, we are seeing a more positive sentiment across the market which we believe is likely correlated to calmer markets and a less bearish momentum. We believe the crypto space still has a long way to go to become mainstream, but every day we are seeing more and more smaller institutional type players enter into the space and building on this, larger companies like JP Morgan, Fidelity and Facebook beginning to launch blockchain based products. Our team is long on the crypto market and believe this industry is here to stay, but in the short term we take a cautiously optimistic view while definitely being bullish on the longer-term broader market outlook.
Coinbase recently announced they will allow users to earn staking rewards from Tezos, is staking something you plan to offer?
This is an interesting concept, and we are beginning to see more products coming to market around staking. Staking at this stage is not part of our roadmap, however, based on our recent institutional lending study, 68% of institutions surveyed are interested in using stable coins for both principal and collateral. This stable coin option will definitely be something we will look to add to our platform as soon as possible.
What important trends do you see emerging in the industry?
The main trends we are seeing encapsulate one overarching phrase in my opinion – “A cry to further development the crypto infrastructure.”
While industry fundamentals are more robust than a year ago, most are still trying to figure the how the underlying infrastructure will work for the industry. Lending markets, settlement and custody are a few key examples that come to mind here.
Custody - While regulated and well-known firms such as Fidelity and Nomura have dipped their toes in the water with crypto custody, due to their nature, these firms take time to bring product to market and seem to be starting out with a very targeted strategy centred around specific key clients in specific markets. Among smaller crypto custodians, there is an increasing trend to add additional products to their custody offering such as staking or lending services. The space is still highly fragmented, so it will be interesting to see how custodial networks will develop and play a role in creating a proper ecosystem for assets to be stored and beyond.
Lending – evidence has shown an increase in lending demand, but the market, to this point, has primarily been made up of OTC lenders and P2P retail lenders. With increased lending supply and borrowing demand, Lendingblock believes it will act as a complimentary product and the key piece of missing infrastructure where accredited market participants can come to achieve price discovery and transparent market rates through an open and automated order book.
Settlement – in mature capital markets, risk is diversified across a number of regulated entities – banks, exchanges, custodians, clearing firms. This currently is not mirrored in crypto markets, whereby clearing and settlement of trades is currently not taking place through a third-party counterparty or clearing house. To get this market institutionalised, this is one major challenge that must be solved.
One additional trend is the positive momentum in demand for stable coins.
A number of central banks are issuing a digital form of their countries fiat. CBDCs are an important first step that we are seeing central banks take in order to 'digitize themselves,' and highlights the fact that they are becoming more comfortable and atune to moving into the digital ecosystem for transferring value. As the sentiment of central banks and governments continue to shift here, this creates positive sentiment toward the digital asset economy. Furthermore, stable coins are units of value that are considered 'stable' due to the fact that they are backed by reserve assets of some sort, such as USD. The stable coin is argued to be a convergence of crypto and traditional currency, whereby you get the best of both - the benefits of all that digital assets offer, but backed by the stability and security of a government backed currency. This 'in-between' could be the underlying thread that gets traditional banks comfortable with entering into this new age of finance.
Do you think the crypto markets are ready for institutional investors en masse, if not what's holding them back?
I think every year crypto markets get one big step closer to institutional players entering into the space. As mentioned above, I think there are some key areas around the structure of the crypto market that needs further developing, but we are already seeing this take shape and quite quickly. Regulation is also still high on the agenda and plays a critical role in the decision making of large, regulated firms entering this market. With the increased involvement of firms such as the BNY Mellons and JP Morgans of the world, it is only a matter of time..
Where do you see Lendingblock in 2 years?
In 2 years, we believe Lendingblock will be the go-to digital asset lending exchange for institutional market participants. It will be a regulated, secure and transparent marketplace and core infrastructure that connects the institutional crypto ecosystem and is essential to the functioning of the crypto markets. Furthermore, it will be the exchange firms rely on to find true price discovery and digital asset yield curves that are reflective of the market value.