It’s telling that the person managing $9 billion in outstanding loans says that Bitcoin is one of the best forms of collateral across all types of debt instruments.

That’s according to — among sources Crypto Investor spoke to for this story — Matt Ballensweig, head of institutional lending for crypto trading firm and prime broker Genesis. And unlike something like a house or vehicle, Ballensweig said, volatility is easier to stomach because Bitcoin can and does appreciate in value.

“If you really think about traditional lending against collateral, it might be against a house, it might be against intangible assets like property, it might be against other securities or illiquid, fixed income instruments,” Ballensweig. “With bitcoin as a collateral asset, yes that value is going to move around relative to the underlying value of the loan, but it’s highly liquid.”

Genesis represents one of the larger players in the rapidly growing institutional crypto lending market. The field also includes DeFi protocols like Aave, MakerDAO, Compound and newcomer Maple Finance, which launched its decentralized corporate credit market in May. The operation has already seen its inaugural liquidity pool grow from $17 million to $37 million.

The institutional lending desk at Genesis, which launched in 2018, has grown into a 40-person team – making up almost a third of the whole Genesis headcount – with roughly $9 billion of active loans outstanding to 300 hedge funds, high net worth individuals, corporate clients and family offices.

The staff has Wall Street credentials, too. Ballensweig, for example, joined Genesis four years ago after having worked as a senior analyst at Bridgewater Associates and Fidelity Investments.

The Genesis desk lends out a mix of Bitcoin, U.S. dollars and stable coins — plus about 35 other digital assets to clients, most of whom are U.S.-based. But overseas clients account for about one-third of Genesis's lending business, with especially high demand coming from Asia, and that segment has been growing.

The company recently, in fact, established an office in Singapore and just this month named Satbir Walia as its regional director of Asia Pacific. Ballensweig said the company is continuing to build out the team there “to have boots on the ground and increase our presence.”

“There’s a lot more institutional interest now, in terms of lending dollars against Bitcoin, from large trading firms and banks that weren’t really active in the lending market about a year ago,” he said. “Another theme is the continued interest in borrowing USDC and other stable coins to arbitrage futures versus stock market.”

Ballensweig said Genesis has a credit facility with Silvergate Bank and has been in talks with its rival, Signature Bank, to do the same there. Silvergate Bank has been rolling out a booming book of crypto-based lending.

But there’s still a lot of room in the market for crypto firms that want to manage all their transactions on-chain. That’s where DeFi protocols like Maple Finance come in. Since its launch, the company has funded loans to Alameda Research, Wintermute and Amber Group.

CEO and co-founder Sidney Powell launched Maple in mid-May – with a corresponding white paper, of course – because he saw promising cryptocurrency and blockchain startups struggling to prove their potential to traditional lenders.

Powell had been working in securitization and commercial lending at National Australia Bank and fintech startup Angle Finance. In early 2018 he started to learn about smart contracts and realized that many of the if-this-then-that logic that was being recorded in lending paperwork could be shifted into smart contracts.

“Our thesis is that we have all these crypto native companies in the market that had very strong balance sheets, were highly profitable, had great runways ahead of them and were cash flow positive,” he told Crypto Investor. “We recognize these companies are going to be many times the size they are now, but they’re going to need capital in order to reach that growth potential and they’re not currently able to access it through traditional financial channels.”

Powell maintains that Maple isn’t making riskier loans than its traditional finance counterparts, just that the team has the kind of background and knowledge that its competitors lack to perform due diligence. And that’s paid off in a big way, with yields of up to 11%.

Powell says Maple is able to do so by appointing a pool delegate, Orthogonal Trading, to manage off-chain negotiations with potential borrowers before they propose a new loan and initiate the transaction from Maple’s liquidity pool.

But he expects that knowledge gap between DeFi protocols and traditional lenders – and the resulting lucrative opportunities – to be temporary.

“I think current yields are a reflection of a market structure that still has inefficiencies in it. As more liquidity comes into the space, then returns on capital will drop,” Powell said. “I actually look forward to that point, because as there is more liquidity and lower borrowing costs, it means that the platform will have been able to service a wider array of customers.”

It’s telling that the person managing $9 billion in outstanding loans says that Bitcoin is one of the best forms of collateral across all types of debt instruments.

That’s according to — among sources Crypto Investor spoke to for this story — Matt Ballensweig, head of institutional lending for crypto trading firm and prime broker Genesis. And unlike something like a house or vehicle, Ballensweig said, volatility is easier to stomach because Bitcoin can and does appreciate in value.

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