A New Bitcoin-Backed Borrowing Platform Aligns Banks to Lending

The collapse of big crypto lenders like Celsius Network and Voyager Digital this summer may have cooled the market, but Max Keidun says his new lending platform will be different — and has a chance to make banks love bitcoin (BTC).

“My dream is to make banks live by the bitcoin standard,” said Max Kidon, CEO of peer-to-peer exchange Hodl Hodl.

His new platform, Debifi, was announced during Baltic Honeybadger Conference On Saturday, it is slated to release next year. It will allow users to borrow long-term loans in stablecoins and fiat using their bitcoins as collateral. Kidon said some banks have already expressed interest in joining DeBevey as a lender, declining to name any of them.

“We already have liquidity providers, but paper loans will be added half a year after the platform launches,” Kaedon said, adding that DeBifi will launch sometime in the first quarter of 2023.

Keidun said that both fiat and stablecoin lenders will be institutions, and cash lenders will need to obtain the appropriate licenses to join the platform.

“We will get to know them all, and do our due diligence on them,” he said.

Currently, two companies have agreed to work with the new exchange to provide liquidity, Keidun said: central exchange Bitfinex, which is also a sister company of the largest issuer of the stablecoin Tether; and XBTO, a crypto financial company that also offers legal Bitcoin-backed loans Itself. Both are investors in Hodl Hodl, a dishonest Bitcoin exchange invest Undisclosed amount in Hodl Hodl in July 2021 and XBTO Share In Hodl Hodl’s Series B funding round in October 2021.

Both companies have confirmed their participation in the upcoming Keidun project. “Bitfinex is excited to collaborate with Debifi and first support Bitcoin’s institutional liquidity pool,” a Bitfinex spokesperson told CoinDesk in an email.

There has also been support from venture capital focused on bitcoin: According to Keidun, ten 31 Invest the fund in DeBifi.

four keys

Keidun is no stranger to lending: in 2020, he launched a peer-to-peer lending marketplace called loan, which allows users to lend and borrow stablecoins in an anonymous and unrestricted manner. Just like Hodl Hodl, Lend uses multi-signature warranty papers. When initiating a transaction, whether it’s selling Bitcoin on a Hodl Hodl or a Bitcoin backed loan on Lend, the user’s bitcoin is locked into a multisig which requires two out of three keys to unlock.

Every aspect of the transaction (buyer and seller or lender and borrower) gets a key. The third is controlled by Hodl Hodl or Lend. In the event of a dispute between the parties, the company’s governors and bitcoin are sent to the dominant side. This way users do not have to trust the platform with their bitcoins, which are not stored in a large central wallet, nor do they have to verify their identities. The broad consensus in the cryptocurrency industry so far has been that unguarded platforms are not considered a money transfer business.

Read more: Bitcoin dependents get no-KYC lending option

Debifi will work differently.

Unlike Hodl Hodl and Lend, Debifi users will likely need to go through a KYC check for most loan offers. However, it is up to each lender and personal information will be collected by the lenders, not DeBevey, Kidon said.

DeBifi, for which Keidun is now assembling a different team, separate from Hodl’s Hodl and Lend’s, will also have a different design: instead of two out of three multiparts, you’ll use three out of four. .

As Keidun explains, an additional key will be the property of a fourth holder, who, together with Hodl Hodl, will ensure the security of the funds. The fourth key holders, as Keidun calls them, will be one of a small group of reputable bitcoin companies, including Casa Hodl, Blockstream and January 3, a startup by former Blockstream Chief Strategy Officer Samson Mow. The three companies confirmed their involvement.

The addition of the fourth key aims to enhance the security of the new platform: if a fraudster or hacker wants to abuse the protocol and steal funds from escrow, they will have to give up not only the platform key but also the key held by Casa, Blockstream or Keidun explained Jan. 3.

Keidun said Debifi’s multi-signature guarantee will be coded from scratch rather than using existing code for Lend’s multisigs, adding: “It’s better to write something new than to fix what you already have.” (He said Hodl Hodl and Lend will undergo some development as well.)

“When we launched our lending platform, some people criticized us, saying that the platform could collude with one party to a transaction, take bitcoin out of collateral and deceive the other party,” Keidun said. “And now, there is another key. And the owners of large, reputable companies. They will not deceive people.”

Other new features will be loans with expirations of up to five years (Lend allows users to open loan contracts for no longer than 12 months) and native hardware wallet integration. Users will be able to create escrow wallets with their own hardware wallets, so they can use the signature generated by their own hardware, and not by the platform, as is now the case for Hodl Hodl and Lend.

new approach

Unlike in 2018-2019, when crypto-backed lending was taking off and companies like BlockFi and Celsius were emerging and growing rapidly, 2022 seems like an inappropriate time to start a business in this market. The The collapse of Tira and Lunain addition to the general bearish trend and some reckless gambling By market participants, they’ve brought down a whole bunch of multimillion-dollar companies, including Three equity sharesAnd the Voyager And the Celsius.

However, DeBifi’s partners believe the crisis was a useful lesson that DeBifi could learn from.

Mao, a former chief strategist at Blockstream and founder of the Bitcoin-focused startup, said Jan.

He added that central crypto lenders have not used blockchain technology to improve their business. “Debify really takes advantage of real technology to provide a better solution, and it will make the entire ecosystem stronger and more respected,” said Mao.

Casa CEO Nick Newman said DeBifi’s “hybrid custodianship” approach, when there is no third party in charge of user funds, will give people more control over what happens to their bitcoin than companies like BlockFi and Celsius. .

What you need is transparency about the risks you are exposed to. “When customers keep the keys to the escrow they use, they can see on the chain where that money is and whether that money is at risk,” Neumann said.

And while there are three out of four multisig setups in Debifi, the money can be moved out of the escrow without the user’s permission, as Keidun acknowledged, they “don’t sit in a big tutoring lot, where you don’t know what they are,” Newman said.

Adam Buck, co-founder and CEO of Blockstream, said that getting traditional banks into the business would bring “a massive pool of capital in traditional capital markets with relatively low interest rates” into the Bitcoin ecosystem, driving down prices in the Bitcoin market. Bitcoin lending. .

“The reason why borrowing rates are so high in the bitcoin ecosystem is that most of the capital in circulation is bitcoin, and they tend to invest heavily in BTC and less than the US dollar, so as a borrower you are bidding against their alternative to buying bitcoin themselves,” he said. back.

‘The other important thing’

One of Keidun’s motivations in this new venture has been to witness the explosive growth of non-Bitcoin decentralized finance (DeFi) products, mostly on Ethereum, which he considers an inferior system to say the least.

“I see bitcoin lending lose to digital currency lending. If we want bitcoin to be the top asset, we need to compete with those projects.”

Debifi’s concept would be straightforward and appealing to extremists like Keidun himself, who said: No single entity has complete control over bitcoin’s collateral and there is no re-displacement – meaning that the bitcoin in escrow is not used by the platform to earn additional revenue.

Keidun believes that “this solution will be easy for both bitcoin and banking fanatics to understand.”

Kedon said DeBevey would operate as a marketplace and would not itself provide any loans. It will offer off-the-shelf technology to institutional crypto companies and traditional banks interested in working with bitcoin, so those banks won’t have to deal with the new technology themselves.

“They will talk directly to their bitcoin clients and finally see what a great side-asset bitcoin is. It works 24/7, it’s transparent,” Kidon said.

According to him, a few banks from Europe, the United States, Asia Pacific and the Caribbean have already shown interest in the platform. Keidun said that luring banks into the bitcoin rabbit hole will change the role of bitcoin in the financial system.

“Bitcoin has already shown itself as an unstoppable trading asset. My theory for bitcoin for the next 10 years is that it will become a loan asset, a kind of super collateral,” Keidun said.

This is a view at least that some high-profile bitcoin clients, such as Samson Mow, may share. “Unguarded institutional lending platforms are going to be the next big thing,” he said.

Update: (September 3, 2022, 16:50 UTC): Added info about Ten31’s post.

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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