The crypto lending sector is recovering from the crypto winter that saw several major players go under, driven by a Bitcoin (BTC) exchange-traded fund (ETF) and creditors reclaiming some of their assets from bankrupt companies.
“What I see is that this market has come back with a bang,” Mauricio Di Bartolomeo, co-founder of crypto lending firm Ledn, told CoinDesk in a recent interview at the Consensus 2024 conference in Austin, Texas. “The market never went away. [just] I was scared.”
Cryptocurrency lending is similar to traditional banking: Customers deposit bitcoin or other cryptocurrencies with a company like Ledn and receive interest or use that cryptocurrency to repay the loan. Interest paid to depositors comes from lending their cryptocurrency to others and charging them interest.
The sector has seen a dramatic collapse in 2022, with cryptocurrency prices plummeting and companies like Celsius, BlockFi and Genesis filing for bankruptcy.
Since then, the digital asset sector has recovered from the bear market slump. Prices have soared, with the CoinDesk 20 Index up more than 200% since the end of 2022. The rally accelerated rapidly after BlackRock and other traditional finance giants successfully applied to create Bitcoin ETFs in the U.S. late last year. The positive narrative surrounding these funds is one of the main reasons users are returning to the lending market, according to Ledn's Di Bartolomeo.
“Bitcoin has gone from $20,000 to $70,000 and it's become a focal point of political competition in the U.S.,” he said. “That means there's growing interest in bitcoin and there's a real commodity market for bitcoin as an asset and for bitcoin as collateral for loans.”
In fact, Ledn processed over $690 million in loans in the first quarter, making it its most successful quarter since its inception in 2018. Over 84% of the loans processed were to institutional investors, as demand surged following the approval of a Bitcoin ETF in January. Ledn only processes loans in Bitcoin, Ethereum’s Ether (ETH), and two stablecoins (USDC and USDT).
The institutional players currently participating in this space are mostly market makers, both from Wall Street and crypto-native firms. “These are firms that are active in the spot market as well as the ETF market,” Di Bartolomeo said. “Some have made their name in crypto, others have made their name in TradFi.”
Another reason people are coming back to the lending market is that many of the companies that went bankrupt are starting to give their money back to people who borrowed from them. Di Bartolomeo said many of the companies are now coming back to the lending market.
When asked why this is the case, Di Bartolomeo explained that for most of these users, the investment thesis that assets will increase in value if they hold for the long term has come true despite the market downturn. These users have been “knocked on the knees” by some bad actors, but as they start to get their assets back, he said, many of the “engaged users” are likely not going to sell. Di Bartolomeo added that this is when they turn to the lending market and use their assets to borrow and lend.
“What I'm seeing is kind of incontrovertible evidence that people want to hold bitcoin for the long term, and they want to do both at the same time,” he said. Customers may have millions of dollars in bitcoin, but if they turn to TradFi banks, they won't accept the digital asset as collateral for loans. “That's why we're [lenders such as Ledn] bridge [the gap] For these customers,” he added.
So how did a centralized lending institution like Ledn survive the crypto winter that saw many companies go under? The short answer is that they stayed true to the fundamentals of the lending and borrowing business. He said Ledn only deals with qualified and vetted institutions, has no asset-liability mismatches, and doesn't participate in DeFi yield farming. “So if someone lends me bitcoin, I lend them bitcoin, if someone lends me a dollar, I lend them a dollar. There are always borrowers. And there is always liquidity,” Di Bartolomeo said.
He added that all lending and borrowing activity is time-matched, meaning that a user lends out an asset for a seven-day period, and Ledn will lend it out to another user who can pay it back within five days, providing liquidity for the asset.
“People say our way is boring, but we say: boring, slow, safe, this is our way,” he noted.
