Loading summary
Transcript37 lines
- [00:00]
Wayfair Ad
Wayfair's biggest sale of the season is here right now. Score up to 80% off everything home plus fast and free shipping site wide. Shop now through July 28th at Wayfair.com.
- [00:13]
Wayfair Every style, every home in the.
- [00:16]
Hyundai Ad
Time it takes you to actually board that flight.
- [00:18]
Wayfair Ad
From Group 8 now boarding Premier Altitude Elite club members.
- [00:21]
Hyundai Ad
You could have bought a Hyundai on Amazon. Yes, that Amazon where you buy everything else.
- [00:26]
Wayfair Ad
Mid tier Altitude Elite feel free to board now.
- [00:28]
Hyundai Ad
So while you're waiting for them to make up new boarding groups, you can order your dream car and the dealer will have it ready in no time.
- [00:34]
Wayfair Ad
Now boarding groups went through seven.
- [00:37]
Sid Powell
So close.
- [00:38]
Hyundai Ad
Visit HyundaiUSA.com or call 562-314-4603 for more details. Limited availability pickup through participating Hyundai dealer in select markets.
- [00:45]
Sid Powell
As bitcoin rises, we actually see a lot more borrowing demand. So when, when bitcoin goes up, borrowing demand spikes and rates start to spike. So it starts to become very profitable to be, to be lending in this kind of market.
- [01:02]
Jen Sanasi
Hey everyone. This is your weekly markets outlook on Coindesk where we take a look at what's happened in the crypto markets this weekend. Provide insights into navigating the road ahead. Jen Sanasi here with my co host Andy Bear. And joining us on today's show is Maple Finance co founder and CEO Sid Powell. Hey Sid.
- [01:18]
Sid Powell
Hey Jen. Hey Andy. Thanks for having me on.
- [01:20]
Jen Sanasi
Thanks for being here with us. Now we're sitting here near the end of the week. Talk to us a little bit about what you've been watching in crypto markets. What are you really paying attention to?
- [01:30]
Sid Powell
It's been an interesting week so far. One of the things that really caught my attention earlier in the week was we saw a point from JP Morgan that they would consider doing bitcoin backed loans. This is not too surprising to see off the back of the Genius act getting passed as well as some pretty meaningful progress on the Clarity act and you know, giving market, you know, giving regulatory clarity to the market. But I think you're going to see, as we saw with stablecoins, you're going to see more of these traditional players start to come in and express interest in bitcoin backed lending. We already saw Cantor come into the space last year and so I think you'll see a pretty strong trend here.
- [02:07]
Andy Bear
I want to pick up on that a little bit Sid, because it feels to me, and I'm getting to know your business, but it looks like you take the best of both worlds from the banking side and let's say from the defi port cool side, where you know your counterparties, you have relationships with them and you make collateral posting as efficient as possible. But at the same time everything's on chain. So the, the biggest friction cost for many people in our industry is on ramping and off ramping. So do I have that right? Is that kind of what Maple adds in terms of service that it provides to its borrowers?
- [02:39]
Sid Powell
Yeah, I think that's a fair point, Andy. What we find is that our clientele tends to be very institutional on the borrower side. So when they come to us, they're usually holding Bitcoin or some other large asset, whether it be ETH or Solana as well, and they want the protection and you know, the safeguards of being able to hold that in a tri party account. And so the fact that we are indeed integrated with all of these custodians, whether it be Anchorage or Bitgo or others, gives them an extra degree of comfort as to what's happening with their collateral that they just wouldn't get if they went to one of the fully on chain solutions. So that's where we sit in between. But as you pointed out, unlike a pure play lending protocol, whether it be an AAVE or a compound, we know all of our borrowers, we sign legal agreements with all of them and ultimately we have recourse to them if there is something wrong with the collateral. At the end of the day, Midnight.
- [03:32]
Wayfair Ad
Is a privacy enhancing blockchain, introducing vital programmable privacy and selective disclosure capabilities. It means dapps can allow users to control what information is revealed without putting sensitive data on chain, allowing you to break free from the limitation of choosing between utility or privacy. We deserve more when it comes to privacy experience the next generation of blockchain that is private and inclusive by design. Break free withmidnight visit midnight.networkbreakfree right.
- [04:02]
Andy Bear
So your customers on the other side, your asset management customers who help participate in those pools, they know that they're dealing with a group of lenders who's going to be a little bit more stable because they've taken the time to engage with you and do these loans. They're not quick in and out borrowers, but also that they're going to be of a certain quality and that they trust your methods for assuring that, correct?
- [04:27]
Sid Powell
Yeah, that's right. For us, it's not good business if we're out there liquidating our clients. So we tend to choose clients who are larger in size, who we, we can be assured that they're going to post more collateral if there were a dip in bitcoin or marketplace prices. To date in the 18 months since we started doing the over collateralized product, we've only had one partial liquidation over that time. So I think it attests to the quality of the borrowers that we have and the relationships that we maintain with them. To one of the other points you made, Andy. Generally we find our rates are a little bit more stable because we're offering fixed rate loans to, you know, to these borrowers. And so instead of the rates whiffing around as you might see on a, on a pure play, defi protocol tends to be fairly stable and tends to be a little bit higher than the defi protocols just because there's those extra elements posting native bitcoin and being able to use a custodian and a tri party account to manage counterparty risk and.
- [05:23]
Andy Bear
Save me for going too deep and nerdy.
- [05:25]
Jen Sanasi
Okay, well I was actually going to ask a little bit of a follow up there. I mean can you tell us a little bit more about demand you're seeing from the institutional side when it comes to these borrowing products? And I know the Genius act was just signed, but I can imagine you're expecting that demand to grow as we get into the second half of the year.
- [05:42]
Sid Powell
Yeah, I think we see a number of tailwinds for growing demand as we go into the second half of the year. And I think you've got the genius act is going to create more stablecoins. You know we're at about 260 billion outstanding today. We think that is going to grow to multiples over the next couple of years. And that ultimately means more stablecoins for us to lend out what benefits stablecoins benefits our business. But just linking it back to the markets a little bit, what we find is that crypto lending is in some ways almost inverse to traditional markets. So when the market senses rates are going to be cut risk assets like Bitcoin tend to trade up. And what that means is that it push, it actually pushes up the borrowing rates against Bitcoin because basis funding rate or the and the futures rate starts to go up. And that and acts almost like your risk free benchmark. So at the moment we're starting to actually reprice some of our loans up and folks who are lending on chain, whether they be doing so in AAVE or Morpho or with us, are starting to see higher rates come through off the back of the recent climbs we've seen in bitcoin price. One other Point to add just before I finish is that as bitcoin rises we actually see a lot more borrowing demand. So, so when, when bitcoin goes up, borrowing demand spikes and rates start to spike. So it starts to become very profitable to be, to be lending in this kind of market.
- [07:05]
Andy Bear
That's exactly what I was going to ask. The correlation between I guess price direction and rates or equivalently demand for borrowing, you know we've seen in the second quarter fantastic breadth, right? So Ether did fantastically well. The CoinDesk 20 is, was, was up. Which is our, which is our broad based index was up fantastically in the second quarter. The breadth is good. I guess bitcoin did great as well. But it was really Ether, Salon XRP XLM that really kind of shown are your borrowers deploying into those assets more aggressively or tactically with their loans, do you feel? Or is, is most of your borrowing base just a kind of a more pure bitcoin borrowing base? In other words, does this kind of alts rush and acceleration have the same effect as a bit of bitcoin price rise when it comes to your rate levels?
- [07:55]
Sid Powell
Yeah, it's a really good question. So you have, in this kind of market you have the folks who just want to borrow to kind of go levered long bitcoin. But when you see, you know, the beginnings of an alt of an altcoin season and we've seen that, you know, you've seen the index of altcoin performance relative to bitcoin start to rise. It's not in what I would call euphoric territory yet, but we are, you know, we are seeing coins like eth, sol, XRP start to outperform bitcoin. What that means for us is that we start to see more demand for borrowing against these coins. We have folks at the moment, we're starting to see more inbound for borrow against hype as well. We've seen some, some inbound for borrow against xrp, against ada. So you start, you do start to see a little bit of an increase in what I would call breadth of the collateral. But also a lot of our clients, they might be primes or OTC trading desks. So they tend to maintain a core position in bitcoin and if they can borrow against that, keep their long exposure and use the proceeds, the loan proceeds from us to start offering settlement or other forms of trading finance to their clients, that activity picks up. So that's one of the reasons that general price appreciation just, just drives more demand from our clients. And also of Course, a general wealth effect, like if your portfolio has increased by 10 or 20%, you have more capacity to borrow the same way you would if your house doubled in price.
- [09:23]
Andy Bear
I guess looking from the other side and again bringing it back to the markets, there was a big opportunity. Actually, Jen and I did a segment not that long ago before this last big pulse up where we were thinking, you know, implied vols were going lower, funding rates for perps were going lower, rates were going lower because bitcoin was stuck in this range right before this last big jump over the last couple of weeks. I guess your lenders who are on, on the asset management side are going to be similar, right? They're going to be yield seekers unless they detect other big opportunities. So does your change and shift in rates, is that also linked to the supply on the asset management side of your business? Right. As. As capital evacuates to that to go chase an altcoin season, you have to raise rates to make it more attractive for them to come back.
- [10:09]
Sid Powell
That's exactly right, Andy. That's kind of the dynamic of the market. And you can see that not just with us, but you can also see that with some of the defi protocols like AAVE and Morpho and Euler, what happens is that as prices are rising, people are pulling their capital. So the utilization on those protocols is going up because people are, people will pull to go and invest in market beta. They want to be long, the appreciating asset instead of collecting yield. And it can definitely flip very quickly. Like only a month ago seems like ages given, given how fast the market moves. But only a month ago we were actually sitting on a lot of inventory and utilization was coming down because it was very attractive to just collect yield. Now as prices have risen, borrowing demand spikes. So we're now fully, fully deployed. So we're basically making the maximum amount that we can be and we're raising rates and we're doing that, we're raising rates as well to try and keep lenders, the capital providers on the asset management side of the business. You know, in, in the market. Like we, as, as their opportunity cost grows, we have to be conscious of paying them a higher yield, you know, to keep them in business with us.
- [11:14]
Jen Sanasi
Another big narrative this week was ETH treasury companies buying a bunch of eth. Before that it was bitcoin treasury companies. Now we have BNB treasury companies, litecoin ones. Are these companies coming to you to maybe borrow against the assets on their balance sheets? Talk to me a little bit about that.
- [11:33]
Sid Powell
It's a relatively new phenomenon, but we definitely consider this an attractive segment. So the short answer is yes, some of them are in conversation with us about borrowing against their Treasuries. The concept was actually kind of first pioneered by saylor Back in 2021, 2022, they had a facility with SVB. Obviously it was much smaller in size relative to where a strategy is now. But it shows that having a line of credit against your treasury assets can be a useful tool because it gives you a way to opportunistically purchase dips. If ETH or BTC prices were to retrace, and generally we're going to be. A facility like this is going to be more flexible so you can draw it down faster and it's going to be lower cost. You've seen a recent, you know, influx of investors into these treasury companies, but it's worth noting that the folks who are putting money into these pipes and converts, their internal hurdle rate is not 8 or 9%. These people are trying to hit 15, 20% and above. And so that actually ends up being very costly capital. So we can come in as a cheaper financing partner that allows them to tactically buy dips. And we have spoken to not just BTC and ETH companies, but we're also talking to some of the treasury companies doing a range of other assets. I think it's going to be a trend here to stay. It hasn't played out just yet and we're kind of keeping tabs on it and, and, and exploring options.
- [13:03]
Andy Bear
Fantastic. I think what happens when you have a new borrower come in with a giant size and there must be some. You can't immediately expect the lenders to come in instantly or, or is there, is that baked as the contract? How does that fluidity work?
- [13:18]
Sid Powell
We would be prepared to fund relatively quickly with one of these companies because we generally have liquidity that we spare to fund new loans. I think what we found though, with a lot of them is that they do have a rather long timeline, so they might have made the announcement a week ago or a month ago, but, you know, they may still have another 30 days before they're in a position to actually do a deal with us because they have to clear conditions, precedent, they have to settle the funds, buy the assets and just get their governance in order. So I'd say that's probably the reason we haven't, we haven't fully yet, but I don't, I haven't seen any signs of it slowing down yet. And I know some people are concerned about these the company's asset premiums going to a discount. I think that's actually going to be the other case where it could then be useful for them to just borrow against their assets. It's cheaper to issue shares when you trade at a premium. It's more expensive if you trade at a discount. And that's where it might be worth considering a line of credit or some other option like on the debt side.
- [14:23]
Jen Sanasi
We gotta wrap up in just a second but I want to ask you, you know, as you look forward to the weeks to come second half of the year, what are the big milestones you are watching out for?
- [14:33]
Sid Powell
So I think like everyone else, I'm kind of keeping an eye on what happens with the Clarity act. I think this is going to be really important. I say that as a builder based here in the US but it's going to be really important to to bring back defi builders and entrepreneurs to the US and kind of strengthen the sector locally. I am keeping an eye out for on the macro side any potential rate cuts coming up because I think that is going to be kind of a catalyst for more of what you point out earlier. Andy, a little bit, you know, a little bit more of alt season which is really going to kind of be when the pace picks up within the space. And then the other thing I'm keeping an eye on is I think the defi sector is just performing really well as an investor I'm kind of looking at trying to allocate among the defi sector and I do expect it to kind of outperform relative to things like meme coins over the rest of the year.
- [15:22]
Jen Sanasi
Thanks so much for joining our markets show. We appreciate your insights and I'm sure we'll talk to you again soon.
- [15:29]
Sid Powell
No problem. Thanks for having me. Big news.
- [15:35]
Wayfair Ad
Wayfair's biggest sale of the season is here. It's Black Friday in July. Right now score up to 80% off everything home at Wayfair. Get our lowest prices of the summer for five days only. Plus amazing doorbuster deals and 24 hour surprise flash deals with fast and free shipping site wide. So don't wait. Head to Wayfair.com today to score up to 80% off. Now through July 28, Wayfair Every Style.
- [16:02]
Every home, wherever you go, whatever they get into. From chill time to everyday adventures. Protect your dog from parasites with Credelio Quattro. For full safety information, side effects and warnings, visit cordelioquattrolabel.com consult your vet or call 1-88854-55973. Ask your vet for Cordelio Quattro and visit quattro dog.com.