Where did the idea of Lendingblock come from?
My co-founder Linda Wang and I had worked together previously on Lendr, which provided a reverse auction platform for mortgages, connecting borrowers and lenders in a similar way to Lendingblock by disintermediating the mortgage platform. We both had some years experience in blockchain technologies, and I was previously a partner at Deloitte specialising in financial technology and regulatory technology. Our joint experience and exposure to cryptocurrency allowed us to identify the opportunity and need for a trusted lending marketplace. It was clear to us that just like in the traditional capital markets, as a market that generated $4 billion of revenue in 2017, the crypto economy required a parallel financial service for securities lending. We recognised that there was a once in a lifetime opportunity to design a new financial system on a blank sheet of paper. Last autumn, we set about building an exchange for crypto asset-backed loans that will meet the needs of institutional and individual borrowers and lenders in the crypto economy.
How does Lendingblock work and what is the primary target audience?
Lendingblock is bringing securities lending to the crypto economy. Lenders, including individuals and institutions, can simply and safely earn additional income on long-term investments, while borrowers including funds, investors, market makers and traders can access assets to support trading, fund working capital, or investment funding needs.
The way we operate, however, is very different to conventional securities lending in two critical ways. Firstly, a real-time exchange links borrowers and (multiple) lenders transparently, providing best execution for borrowers and lenders and equal access for all participants. Secondly, we use smart contracts to automate the terms of the lending agreement, including the transfer of principle and collateral, distribution of interest payments, collateral management, default processing, and repayment.
In essence, the roles played by prime brokers and agency lenders don’t exist in our model, meaning that the levels of transparency, equality of access, and efficiency are much higher, to the benefit of borrowers and lenders.
We have seen the planned launch of Oxygen, a decentralised crypto-repo platform, last year we had Tzero, do you feel this will become a crowded space pretty quickly and how will you differentiate?
We are the first and, so far, only platform to allow lending across multiple blockchains. Right now, the options out there are fragmented, and not robust enough for institutional investors, who have demonstrated they want access to these markets, but need the infrastructure in place to do so. That’s what we are providing with Lendingblock.
In terms of competition, it is inevitable and healthy, and if you don’t have competition, it’s probably because you don’t have customers.
When will the platform be live and trading commence?
We will launch the live Lendingblock exchange in Q3 this year, once our regulatory approval has been granted by the Gibraltar Financial Services Commission (GFSC).
How are the trades collateralised?
Lendingblock is a purely digital securities lending platform. This means the loans are digital assets, and the collateral provided by the borrower is also a digital asset. For example, a loan of bitcoin can be collateralised by ethereum.
Initially, Lendingblock will support the top-five cryptocurrencies (bitcoin, ethereum, ripple, bitcoin cash, litecoin), but will expand to support other assets including securities and
debt instruments.
When making a borrowing request, borrowers specify the type of collateral they are offering as security; lenders may accept any form of collateral, or optionally elect to specify which forms of collateral they are willing to accept or exclude. Borrowers and lenders are then matched in terms of both loan and interest rates, and the smart contract manages the loan.
How does the recent volatility in bitcoin affect Lendingblock?
Firstly, it highlights that markets don’t always go up, emphasising the need for borrowing to allow hedging and to support more diverse trading strategies.
Secondly, it shows that crypto assets are strongly correlated to each other, meaning that the levels of collateralisation required in our model are lower than they would be if loans were collateralised by fiat currencies.
Do you feel the regulatory environment is driving the securities finance market and creating opportunities for Lendingblock?
We don’t think that the current regulatory framework for securities finance is directly creating opportunities for Lendingblock given our focus purely on crypto assets.
However, we believe that cryptocurrencies will be increasingly tightly regulated, and are actively planning and creating a platform that is aligned to relevant regulation, including Securities Financing Transactions Regulation (SFTR) and parts of the second Markets in Financial Instruments Directive (MiFID II).
Our decision to incorporate and establish Lendingblock operations in Gibraltar is in part driven by the progressive position the GFSC has taken in defining a regulatory framework for distributed ledger technology (DLT) businesses.
Where do you think you will be this time next year?
In a very exciting position. We have been working extremely hard since launching the business last Autumn to get the exchange off the ground, and are right on track. We have a formidable team of high calibre, experienced individuals who are all passionate about the possibilities that the blockchain provides. Looking ahead to this time next year, we will have been operational for six months and will be at the very forefront of the growth of the brave new world of securities lending for the
crypto economy.
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Matt Wolfe
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