Assessing the Future of Crypto-Collateralized Loans

Cryptocurrency enthusiasts envision a future where incumbent financial entities are displaced by digital money and smart contracts. To date, the ‘be your own bank’ mentality has been a key selling point on Bitcoin: that is, the concept that individuals, and individuals alone, are in complete control of their funds through sovereign management of their private keys.

If disruption of the financial system is to truly take place, the banking analogy must be extended further. Cryptocurrency holders need access to the wide range of tools traditionally available to them in the fiat system, so as to lay the groundwork for a new financial ecosystem. To make our crypto currency work further, as opposed to being locked up in silos and HODLed.  

Crypto-lending is one endeavor that promises strides in this direction. With a model pioneered by “ grizzled veterans” of the industry,  SALT Lending was founded in 2016, and an increasing number of players now offer holders the ability to provide blockchain-based assets as collateral for cash loans. The popularity of such platforms is evidence of a maturing cryptocurrency space: now that the option is available, it’s clear that a number of individuals would prefer to use their cryptocurrency as collateral, as opposed to selling and later rebuying it.

On Day 3 of Consensus, the panel CryptoLend-o-Mania was one of a few panels that brought together innovators and competitors from the same space to duel it out and discuss their differentiators. Moderated by Peter McCormack, he welcomed to the stage representatives from BlockFi, SALT, Celsius, Nexo and Cred. “It hurts the industry to be in this non-stop competitive mode, and we need to learn to play together in the same sandbox” said SALT, co-founder Ben Yablon in a rallying call during the panel.

As to the role of existing banks in this new paradigm, there were a range of differing opinions: Celsius’ Alex Mashinsky is staunchly against working with them, believing that traditional finance and crypto cannot function together – Alex is a man that knows well how to score points with his crypto-anarchist fans. SALT’s Ben Yablon, on the other hand, noted that the company has worked between both for some time, and that innovation from within the financial system could only be beneficial to the creation of value across the board.

SALT’s focus is on being a bridge between crypto and traditional finance through regulatory compliant technology and platforms, while Mashinky focused on bringing down the banks. Yablon recalled a time in 2016 where “crypto assets were stuck in the system without working for the holder”, and the panel was, of course, united in their vision to make crypto assets both more liquid and more fungible. Antoni Trenchev of Nexo was optimistic for the social inclusion aspect of crypto-collateralized loans, believing that they could shine in largely unbanked communities in which his company claims to focus.

The idea that the conversation seemed to converge on was that this type of cryptocurrency infrastructure grows more sophisticated by the day, with new features emerging to accommodate holders seeking to put their money to use. For the industry as a whole, this can only be good news: irrespective of how one feels about the place of legacy banks in the age of cryptocurrency, the replication of their functions in the crypto space is vital to its long-term viability.

You can catch a video of the panel at Consensus, here:

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.