Cryptocurrency investors finally have more options to benefit from their digital assets.
Rather than simply trading crypto assets in a highly volatile market, new monetization options brought over from the mainstream financial world are becoming readily available.In the past few months, we've seen the launch of Bitcoin futures, along with the listing of two blockchain exchange-traded funds on Nasdaq. For early crypto converts, these are welcoming signs that the cryptocurrency asset class is rapidly maturing.
As the range and variety of crypto assets expands, however, the biggest challenge for many investors is no longer about putting their money to work in the crypto market. Rather, it's about trading their existing positions in a safe and cost-efficient way to get income from their crypto holdings, or use them as collateral to fund other investments.
Here are three new trading products based on mainstream financial models that are being launched in the crypto space:
1. Crypto-repurchase agreements
Former Goldman Sachs banker, Alex Grebnev, teamed up with the instant cryptocurrency exchange, Changelly, to create a decentralized platform for crypto repurchase agreements that is scheduled to launch in this year. Known as Oxygen, this platform will enable crypto market participants to borrow or lend crypto assets to earn income, raise liquidity and take directional investment views via an instrument called a "repo" or a repurchase agreement.
Traditional repos allow investors to sell securities and repurchase them on a specified future date at a pre-agreed price. A crypto-repo transaction lets one party borrow crypto assets from another party, committing to return those assets with interest at a future date. The borrower provides crypto assets to the lender as collateral, creating a secured digital transaction using an Ethereum-based Smart Contract.
Repurchase agreements are commonplace in the financial system and are widely used by banks. The repo market for U.S. dollar and euro-denominated bonds is around $12 trillion. It is governed by a tried and tested legal infrastructure called the Global Master Repurchase Agreement (GMRA).
"The cryptocurrency market is evolving very quickly and the adoption of best practices from mainstream finance will increase its professionalism further," Oxygen's co-founder and chief operating officer, Alex Melikhov, told me. "Crypto asset holders have seen extraordinary price gains, albeit with significant volatility, but do not receive income. Crypto repo transactions will change this and further the development of the entire crypto market."
Repos minimize counterparty risk and provide flexibility because the collateral is tradable. Market participants can securely make use of their excess cash balances and earn income (the repo rate). The temporary access to assets provides investors a means to take a short view (i.e., selling an asset with the aim of buying it back at a lower price in the future).
2. Blockchain-backed loans
For cryptocurrency enthusiasts looking to go down a different path, the company SALT offers crypto holders liquidity via blockchain-backed loans. The concept behind SALT is simple -- users purchase SALT tokens to become a member of the SALT platform. They then put Bitcoin or Ethereum up as collateral and SALT provides a loan in U.S. dollars. Once the loan and interest are repaid, the borrowers receive their cryptocurrency back, without any prepayment penalties.
Here's how it works: A borrower sends collateral to the SALT collateral wallet, and funds are transferred to the borrower's bank account. The collateral remains the property of the borrower, meaning any price appreciation or depreciation belongs to the borrower. Loans are repaid over time, as the borrower makes timely payments to the lender. Importantly, the member lenders at SALT have "accredited investor" status, which means they have passed the SALT's lending suitability test.
3. Tokenizing financial assets
Finally, tokenizing, ortaking real-world assets and putting them on the blockchain in the form of tokens, financial assets is also gaining traction in the crypto community. Jibrel Network is a crypto platform that allows brokers and investors to tokenize their financial assets such as currencies, equities and commodities and sell them on a blockchain to earn profits.
Jibrel Network has also created their own tokens that represent the value of real world assets. These tokens are called CryptoDepository Receipts (CryDRs), which mimic the structure of American Depositary Receipts (ADRs), the US-listed, dollar-denominated securities that mirror the value of international equities. CryDRs are backed by the Jibrel Network Token, or JNT, with a USD CryDR holding $1 worth of JNT, and a EUR CryDR holding 1 euro worth of JNT).
CryDRs can be used for remittances, global payments, trading and hedging. They can also be used to create automated and decentralized financial instruments such as bonds, commodities and equities. CryDRs also have regulation embedded in them.
Ultimately, Jibrel envisions a future where equities, commodities and more are all managed on their ethereum blockchain platform. And this dream may just become a reality -- Jibrel Network recently hit a hard cap of $30 million for its recent ICO, a month ahead of schedule, according to a company report.
The author holds stock in investment holding company, Leucadia, and remains a partner in an emerging technology fund. He holds no positions in cryptocurrencies or in any companies that invest in them.