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Arrington-Backed Startup Launches Crypto-for-Cash Credit Platform

Cryptocurrency startup Nexo, which is backed by TechCrunch founder Michael Arrington, has launched a cash-based lending platform.

Announced Monday, Nexo provides loans or extends a line of credit using its own assets, said managing partner Antoni Trenchev. To that end, the startup raised $50 million from investors, which will be used to provide liquidity to the company’s platform. This departs from existing crypto-backed lending solutions, which instead connect borrowers with other individuals willing to loan out their funds.

This structure allows Nexo to provide instant loans without requiring credit checks or the time delay that manual approval processes require, Trenchev said.

The startup, which was spun off from European fintech firm Credissimo, has also partnered with blockchain security firm BitGo, which acts as its custodian, Trenchev told CoinDesk. Further, the company is now looking to team up with a small Federal Deposit Insurance Corporation bank to store assets.

He added:

“All of the software, all of the automation process is something we have developed ourselves, and most of the tools, we have used them for several years. All of our software and automation process are [use by Credissimo]. … We have developed our own models of insuring and protecting our business.”

Notably, the company is backed and advised by TechCrunch founder Michael Arrington, who told CoinDesk that he is one of the startup’s financial backers.

Nexo is acting similarly to a bank with its lending model, according to Arrington.

“I haven’t seen anyone do a good job so far of providing liquidity for people who have cryptocurrencies without forcing them to sell the cryptocurrency, or to put it more succinctly, provide a proper credit line to people who own cryptocurrencies,” he said.

Trenchev said Nexo wants to set a precedent for traditional financial institutions, namely banks, and prove that cryptocurrencies can be trusted as an asset.

“If you look at the trend with cryptocurrencies, volatility is going down, it’s still very volatile … [but] we are pretty confident that volatility is on a downward trend and will continue to do so, which will make our model even more robust than it is,” he said.

Ultimately, Trenchev concluded, Nexo’s benefit comes from the fact that it lets clients “spend the value of [their] crypto without having to spend it.”

Bitcoin and dollars image via Shutterstock

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Spring Labs Raises $15 Million to Build Credit Data Blockchain

Spring Labs, a blockchain startup that aims to decentralize the data-sharing process in the credit industry, has raised $14. 75 million in a seed funding round.

According to an announcement Tuesday, the Los Angeles and Chicago-based firm said the round was led by August Capital, with other software- and blockchain-focused capital firms also participating.

The investment will be used to continue development of the company’s blockchain platform in the coming months, as well as to grow its core development team, the firm said.

Spring Labs was first set up in 2017 by the founding and board members of Avant, a personal loan platform in which August Capital also has a stake.

The firm aims to use its proprietary blockchain called Spring Network to exchange identity- and credit-related information using smart contracts in bid to bring data efficiency and regulatory transparency to the process.

Initially, the startup said it is eyeing a collaboration with Avant to test the firm’s existing workflow between its personal loan platform and banking partners over the envisioned blockchain system.

Eric Carlborg, Partner at August Capital, said in the statement:

“We see a huge opportunity here to improve the infrastructure of the global credit ecosystem in a more decentralized and secure way, with the right incentives in place to drive participation and information sharing.”

U.S. dollars image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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China's Banking Regulator Pushes Blockchain Adoption for Credit Market

Blockchain technology should be adopted as part of a plan to boost development of China’s secondary loan market, according to a paper by the China Banking Regulatory Commission (CBRC).

Published on Jan. 19, the paper, drafted by a special committee, covers a variety of topics around developing and regulating financial technologies. In a section on the future development of China’s credit market, it suggests the country should double down its adoption of blockchain technology.

The CBRC, a major financial regulator in China under the State Council, writes in the paper:

“As the time goes on, blockchain technology will enhance the efficiency of sharing critical data such as balance sheets and foster a more liquid secondary loan market. Integrating this technology to our financial service platforms should be part of the future strategy.”

According to the paper, the new comments are the result of recent research and the committee’s visit to counterparts in the U.K and France last  year. As reported by CoinDesk, several European banks have already been taking part in initiatives that use a distributed ledger platform to issue syndicated loans.

The comments also come as another example of Chinese authorities taking different stances on cryptocurrency and its underlying blockchain technology.

While speaking in favor of blockchain’s potential in fostering the loan market, CBRC is also one of the seven Chinese state agencies that jointly issued the notable ban on initial coin offering activities in September of 2017.

Elsewhere in the paper, while airing concerns that regulatory moves in China still largely fall behind the development of emerging internet technologies, the CBRC considers blockchain’s smart-contract feature as a possible solution to automate compliance reports.

China flags image via Shutterstock

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Buyer Beware? Credit Creeps Into Crypto

Marc Hochstein is the managing editor of CoinDesk and a former editor-in-chief of American Banker. 

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


Neither a lender nor a borrower be.”

Polonius’ advice to Laertes in “Hamlet” might well have been a rallying cry for the early bitcoin adopters who sought an alternative to fractional reserve banking.

On a blockchain, an asset can be in your wallet, or it can be in my wallet. It cannot be in both at the same time. You can still lend it to me, but if you do, it’s like letting me borrow your lawnmower – you can’t mow your own lawn until I return it. Unlike banks as we know them, lenders of bitcoin cannot create money out of thin air, Jamie Dimon’s comments notwithstanding.

Quite apart from providing an alternative to central bank money creation, however, cryptocurrencies and blockchains imply liberation from more prosaic forms of credit.

For example, the peer-to-peer architecture of cryptocurrency means transactions are continuously settled on a gross, or one-to-one, basis, rather than waiting to net out a batch of debits and credits across the books of a central intermediary.

Meanwhile, blockchain securities platforms such as tZERO seek to collapse Wall Street’s Rube Goldberg assembly line of trade, clearing and settlement into something closer to “one and done.”

And in an emerging type of crypto transaction called atomic cross-chain swaps, it is impossible for only one side of a trade to go through. It gets done, or it doesn’t.

All of these innovations should, in theory, reduce the need for credit to bridge the gap between trade and settlement, and lead us to a world without baffling distinctions on our bank statements like “current balance” versus “available balance.”

And yet, credit, in various forms, is creeping into the blockchain economy.

Leveraged bets

Consider the following:

  • With bitcoin’s price hitting new all-time highs and garnering mainstream media coverage, there are secondhand reports of U.S. consumers going into debt to buy cryptocurrency. “We’ve seen mortgages being taken out to buy bitcoin,” Joseph Borg, president of the North American Securities Administrators Association, said on CNBC. “People do credit cards, equity lines,” said Borg, who is also director of the Alabama Securities Commission.
  • Most or all of the major crypto exchanges offer margin trading (including, ironically, Poloniex, which apparently did not heed its Shakespearian namesake’s advice). BitFlyer, based in Japan, for example, allows traders to leverage up to 15 times their cash deposit. To be fair, the lending on these platforms is often peer-to-peer, between exchange customers. “We don’t take any risk. The trading is between our customers,” bitFlyer’s CEO Yuzo Kano told the Financial Times recently.
  • At CoinDesk’s Consensus: Invest conference last month, there was much talk of bringing other forms of leverage, such as prime brokerage and securities lending-type services, into the crypto market to accommodate demand from newly-arrived institutional investors.
  • There is some speculation that Tether, the issuer of a dollar-pegged cryptocurrency, has been printing tokens to drive up the price of bitcoin on Bitfinex, an affiliated crypto exchange. For the record, Tether has said its tokens are fully backed and that a forthcoming audit should put the doubts to rest.

Some out there will say: Told you so.

According to one school of thought, credit, be it net settlement or fractional reserve banking, is necessary for a functioning financial system, and to think otherwise is naive utopianism.

Expressing this view, Perry Mehrling, an economics professor at Columbia University’s Barnard College, exhorted techies to wake up and smell the interdependency in a September blog post:

“…[M]arkets are being made to convert one cryptocurrency into another, and … markets are being made to convert cryptocurrency into so-called fiat. Someone or something is making those markets, and in so doing expanding and contracting a balance sheet, in search of expected profit. … Cryptos fear credit, but I suspect they will soon discover that credit is a feature not a bug, and that will require them to re-examine the implicit monetary theory that underlies their coding.”

But there’s another way to look at the situation, which might be summed up as: there goes the neighborhood.

The phantom menace

In other words, an influx of get-rich-quick types, whether they’re individuals taking out loans to buy crypto or institutional investors seeking to juice returns with leverage, could encourage the sort of behavior that bitcoin was designed to escape.

Like, say, a hosted wallet provider lending out customers’ bitcoin without telling them.

“I fear the financialization of bitcoin, in the sense that it may create phantom bitcoin that may not actually exist,” said Caitlin Long, the president and chairman of Symbiont, an enterprise blockchain startup.

As a Wall Street veteran, Long doesn’t fit the typical bitcoiner profile, but she’s been personally investing in the cryptocurrency since as far back as 2013, when her day job was running the pension business at Morgan Stanley.

“As more of the non-philosophical owners of bitcoin come in to bitcoin, where you’re seeing more and more of a push toward the financialization of it, I think that would be a shame,” she said. “Even though it would boost the price in the short term, it would remove bitcoin from being a true store of value.”

Switching back to the securities markets, Long said she doesn’t buy the argument that net settlement is necessary for a system to function. For one thing, the practice creates little-appreciated risks.

“As long as you’re allowing net settlement, you’re not forcing a true-up on every trade that there is one buyer and one seller,” she said. “If you’re allowing net settlement, what you’re really doing is allowing multiple buyers for only one asset.”

Hence situations like the court case this year in which brokerage firms had sold more shares in Dole Food than the company had actually issued.

Further, Long said, the global financial markets have dragged their feet in speeding up settlement times not because the status quo is efficient but because it’s profitable for incumbents.

“The whole reason we have T+3, T+2 settlement is for securities lending,” she said. “It’s all about brokerage firms who want to be able to lend their clients’ securities to other clients and take a spread.”

Reality check

In this light, blockchains are not the mere fantasy of a coterie of anarcho-capitalists and Silicon Valley propellerheads, as a number of skeptical academics, journalists and bloggers make the technology out to be.

Rather, if put into wider practice, blockchains might dispel many current, widely held fantasies.

To be sure, there may be times where credit (ultimately another word for “trust”) is truly unavoidable. By trusting me not to run out the door without paying, the grocer is in a sense extending me credit for the minute or so between when I pick up a jar of pickles from the shelf and when I pay at the counter.

And when you order a pickle slicer from Amazon, you are in a way extending credit to the retailer by paying and waiting a few days for the delivery.

But these are transactions involving physical objects, and the “loan” terms are only as long as they need to be. When the items being exchanged are purely electronic abstractions (as money and securities increasingly are), what purpose does credit (waiting to be renumerated) serve?

It’s a question that we should at least ask, and demand better answers than “this is the way it’s always been done.”

This above all: To thine own trades be true.

Shadow image via Shutterstock

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Credit for Cryptos: For Better (or Worse) Leverage Trading Is Arriving

“Leverage is the touchstone of most of the bubbles in the world.”

A few years ago, that comment by Murray Stahl, chairman and CEO of asset manager Horizon Kinetics, would have been so typical for a cryptocurrency conference as to escape notice. But at CoinDesk’s Consensus: Invest event on Tuesday in New York, Stahl’s credit-wary sentiment stood out as an outlier.

Instead, “leverage,” “lending,” “margin trading” and “credit” were painted as elements of the market that need to be further developed (along with better custody services) in order for the nascent crypto asset industry to flourish – not sins of the legacy financial system to avoid repeating.

Call it a sign of selling out, an early warning of systemic risk or simply an indicator that the cryptocurrency world is maturing. Either way, the arrival of institutional and high-net-worth investors in the space has created openings for services similar to the prime brokerage that financial institutions have long provided to hedge funds, several speakers said.

“There is a strong demand for leverage in the space,” said Adam White, a vice president at Coinbase and general manager of GDAX, its digital asset trading platform.

To meet that demand, GDAX hopes to reintroduce a margin service that it put on “pause” earlier this year, White said during a morning panel discussion. (He didn’t say why the service was suspended, but it apparently happened sometime after the ether “flash crash this summer.)

Trade-offs

But the desire of traders to amplify returns with leverage is not the only reason some see a need for more lending in this market.

Rather, some provision of credit on an intraday basis and post-trade settlement is inescapable even when assets are settled on a blockchain, said Max Boonen, CEO of B2C2, an electronic market making firm based in London.

During his morning presentation, Boone challenged one of the long-touted selling points of blockchains: the instant settlement of trades.

He told the 1,300-strong crowd: 

“Could settlement become faster? Yes. Could settlement become instant? Absolutely not, and nor should it be.”

For one thing, the block size debate in bitcoin has underscored that there is a “trade-off between the speed of settlement and the resilience of the payments infrastructure,” he said. “The more transactions you push through the network, the more brittle it can become.”

Moreover, gross settlement – a pre-blockchain term for trades that are settled as soon as they are processed – “imposes a lot of pressure on the balance sheets of market participants,” said Boonen.

For example, he told the audience, “if I buy $1 million of Treasuries in the morning, and I sell my Treasuries in the afternoon, I need to maintain at all times that $1 million on my balance sheet.”

On the other hand, net settlement (the type of system that real-time gross settlement and later blockchains were supposed to replace) allows for a more efficient use of balance sheets – but requires intraday credit, he said.

Credit creeps in

Echoing these speakers, Dan Matuszewski, the head of trading at Circle Internet Financial, said during a morning panel that there is a “real strong need” for the ability to borrow in this market.

It would not only facilitate short positions but also provide working capital for trading desks to make markets, he said.

During his talk, Boonen of B2C2 acknowledged the irony of the situation given that bitcoin was born as a reaction to the 2008 credit crisis.

“Bitcoin enthusiasts really, really do not like credit,” he said. But, he added, “for better or for worse, credit is an important part of a functioning and liquid financial market.”

Even before the institutional money started flowing in, he noted, “by necessity, credit did creep back into bitcoin and crypto markets in general,” with the major exchanges offering leverage to the early retail investors.

The “beauty” of cryptocurrency is that trusted third parties are not required to simply transfer funds between wallets, Boonen said. But for now, he added, they are needed for the more complex business of trading crypto assets, “to a much greater extent than in the mainstream financial markets.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase

Photo via Michael del Castillo.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.