A former investment banker who bought Bitcoin (BTC) at $4,000 and Ethereum (ETH) at $190 says why he’s a ‘mega bull’ in decentralized finance (DeFi altcoin projects) and tells crypto traders, businesses and explains how it can benefit lenders. We also present the shares of successful investors to Kriptokoin.com readers.
Bet on the rise of crypto
Like many true believers in cryptocurrencies, Quinn Thompson bought the dip in Bitcoin and Ethereum as the coronavirus outbreak plunged global financial markets into chaos. He says he bought Bitcoin and Ethereum around $190 when it dropped below $4,000 in March 2020. As investors grapple with the effects of a rare pandemic, Thompson has seized on two of the best-performing assets in the past two years after considering the unprecedented monetary policies enacted by the Federal Reserve to support markets and the economy. In an interview with the successful investor, he said:
This was the last straw after the Fed announced they were buying investable corporate bonds. This was the signal that it was only a matter of time before they bought and supported the stock markets.
Not wanting to trust the Fed, believing that the markets’ central bank will step in to support the markets with every big sale, Thompson alternatively bet on both his portfolio and career on the rise of crypto.
Then DeFi altcoin project moved to Maple Finance (MPL)
After chatting coldly on LinkedIn about 10 crypto executives, stable income in investment banking and credit underwriting experience into a role that oversees the corporate credit book and yield generation strategy at Abra.
Quinn Thompson says it helped increase assets managed on the platform, which allows investors to trade crypto assets and earn interest, from $300 million in May 2021 to $1.5 billion in January.
For the better part of last year, nearly every crypto industry experienced dizzying growth, but it was DeFi projects that made it a ‘mega bull’. Soon after, he moved to DeFi altcoin project Maple Finance (MPL) as the head of growth.
How does the lending system work on a DeFi altcoin project?
Decentralized lending has been around for as long as decentralized finance. In fact, borrowing and lending protocols like Compound (COMP) played a key role in kicking off the ‘DeFi summer’ boom of 2020.
DeFi lending fills a huge void in the crypto industry because banks have avoided crypto borrowers in part due to the lack of anonymity and regulatory clarity regarding digital asset transactions. This lack of funding means crypto borrowers are willing to pay higher rates to secure cash.
DeFi loan platforms also allow borrowers to collateralize their digital assets to secure loans, bypassing the criteria of lengthy credit checks and burdensome traditional collateral requirements. As a result, borrowers have easier access to finance, while lenders can earn sufficient interest on their loans.
Quinn Thompson says his employer, Maple Finance, does just that. The firm is raising capital from hundreds of lenders who invest their cryptos in a diversified pool to earn interest on the pool’s liquidity asset. Borrowers go through a pool-specific underwriting process before receiving their USD Coin (USDC) loans. ‘Pool delegates’, referring to those approved to manage lending pools at Maple, are responsible for underwriting, due diligence and credit analysis.
So far, quantitative trading shop Alameda Research, crypto unicorn Amber Group, and venture capital firm Framework Ventures are among 25 to 30 institutional borrowers on the platform. CoinShares and Dragonfly Capital are among the lenders on the platform.
How can DeFi loan benefit stakeholders?
DeFi loan enables investors to generate returns driven by ‘demand to borrow’. Walter Teng, digital asset strategy partner at Fundstrat Global Advisors, says in a research note Friday that it is a more sustainable source of yields than yield farming because it is ‘derived from organic demand rather than token inflation’. Quinn Thompson explains:
This is a way for anyone with an Ethereum wallet address to access returns from Alameda or some of the other high-quality borrowers in crypto, as they do not have access to traditional 1% to 3% bank capital resources. It pays capital cost rates of 8% to 9%.
For crypto traders like Alameda Research, borrowed funds allow them to park funds on exchanges. Thus, they can arbitrate crypto prices between different places without delay in transferring funds between them. Because Maple Finance allows under-collateralized loans, it means that credit-worthy crypto businesses that don’t have enough financing to meet traditional collateral requirements can secure the loans needed to finance their operations. According to Thompson, only businesses that have passed rigorous due diligence and financial audits can access capital, to be sure.
Define lenders’ increasing adoption, however, regulatory risks remain a major barrier to lending protocols. In February, BlockFi, which also offers interest-bearing crypto accounts, agreed to pay $100 million to settle charges against the Securities and Exchange Commission for allegedly failing to properly register its services.
By focusing on accredited institutional investors, Maple Finance has mitigated similar risks but stepped up its SEC scrutiny on DeFi implementations. Thompson remains bullish in the long run. He expects the firm to add traditional finance loan managers, crypto-native yield funds, and Bitcoin mining lending capabilities as more capital markets activity is built on blockchain. Finally, Thompson says:
We target more crypto-savvy businesses first. Eventually, once the infrastructure for crypto is ready, everything will be facilitated on the Blockchain.
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