Lendingblock co-founder Steve Swain talks to AltFi about his plans for the exchange.
Lendingblock co-founder Steve Swain (pictured) talks to AltFi about his plans for the exchange.
Many of the hottest companies in the blockchain and cryptocurrency world are ‘choice and shovel’ companies – those that are concerned with supporting the adoption of technology by providing tools and services, such as wallets and exchanges, to users.
Lendingblock is one such company. The soon-to-be-launched platform is, in the words of its founder Steve Swain, “an open exchange for cryptocurrency lending.”
âCryptocurrency borrowers and lenders can come to our platform and we have an open, transparent and fair exchange,â he said, in an interview with AltFi. âSo we take an offer from the lenders and requests from the borrowers and we combine them the same way an exchange works. “
Swain currently has a working alpha version of the platform up and running, with a full launch slated for the summer. Remainder to be done before this is the completion of the construction of the platform. The company is also seeking approval as a regulated exchange from the Gibraltar Financial Services Commission.
âWe want to be regulated like an exchange from day one,â Swain said. âWe think it’s really important for our users and for investors. We are proactively seeking to be regulated rather than being an unregulated exchange. “
Lendingblock is in the midst of an initial three-stage coin offering that will end in April. The first phase has already been completed, raising the equivalent of $ 500,000. The offer is capped at $ 10 million.
But how does the platform actually work? Swain explained that it works very similar to securities lending in the capital markets. Borrowers on the platform are those who wish to access working capital, support trading strategies, or hedge their cryptocurrency wallets. Swain described them as primarily professional or institutional investors.
In the world of crypto-investing, there are many opportunities that require investing in a particular type of cryptocurrency. To invest in the Lendingblock ICO, for example, investors will have to use Ethereum. But what if an investor is rich in Bitcoin but doesn’t own any Ethereum? This is where Lendingblock comes in. The platform allows the investor to borrow Ethereum using their Bitcoin as collateral.
The interest rate on loans is set by market demand, in the same way that rates are set for example on RateSetter (a peer-to-peer lender). The interest itself is paid in LND – the token that was created through Lendingblock’s ICO.
âIt really makes it easier if they can use a common crypto currency to pay and receive interest on a wallet,â Swain said, explaining that he expects a lot of users to hold loan portfolios guaranteed by different assets.
The Lendingblock boss expects most of the platform’s borrowers to be sophisticated investors or lending institutions. But the loan side is likely to be more open as the risks are, according to Swain, offset by all loans being fully secured.
âOn the lending side, it could be anyone with a position in cryptocurrencies,â he said. The plan is to allow these lenders to passively hold their assets and earn a return on them. Swain called it a “combination of institutional lending but also crowdlending.”
He told AltFi he knew of a company – a company he expects to be a client of the exchange once live – that is currently lending Bitcoin at 15-25%.
Lendingblock hopes to differentiate itself based on the range of currencies that can be loaned on the platform. âOur goal is not to limit ourselves to specific parts. There are currently a few lending platforms that focus on certain types of coins. Our point of view is that we want to be as wide as possible, âSwain said. However, he conceded that the platform will start with the bigger pieces.
âInitially, we’re going to do the top ten market caps. The reality is, especially when looking at collateral, it will be better to use something that is established and more liquid because the amount of collateral you would need for something that does not have the depth of liquidity and volatility. very high. We therefore expect that most of the guarantees that will be provided will be the big names, the well known names [Ethereum, Bitcoin, etc.]. But in terms of what you borrow, it can actually be a lot wider. “
The volatility of cryptocurrencies is well known – a characteristic that some may find unsuitable as a form of collateral. Swain has put in place a series of mechanisms to mitigate the risk of price fluctuations, including the blockchain on which the entire platform runs.
âWe will use a statistical model that examines the volatility of the collateral value. And then we’ll use a value-at-risk methodology that basically looks at what the daily price volatility is. We will set a lower limit for the collateral amount, and then if the collateral against the principal drops to the lower limit, we basically inform the borrower that they need to top up the collateralâ¦ Or we can release. So if the collateral increases relative to the principal, we can basically release the collateral, âhe explained.
The collateral release process, if required, is automated. It is, to quote Swain, “codified in the smart contract.” The same goes for the management of interest payments: they are distributed automatically to a syndicate of lenders.
It’s impossible to say, at this point, if Swain and his co-founder Linda Wang will make Lendingblock a success. What is clear is that the model is very different from the typical peer-to-peer / crowdlending platform.
In a recent interview with AltFi, Michel Rauchs, head of cryptocurrency and blockchain at Cambridge Center for Alternative Finance, described two types of crypto investors: long-term investors – those who only invest in so-called prime – and shorter – futures investor coins.
Rauchs long-term investors know what they’re doing. They buy coins like Bitcoin and Litecoin and keep them in a cold store for years, paying little attention to price fluctuations. Rauchs calls them “purists”.
If Lendingblock goes as planned, it could be an attractive source of return for these purists, as they have no other use for their holdings in the short term. Could this group be the creator of the platform? Time will tell us.