SAN DIEGO – A San Diego-based finance company is offering a solution to the sometimes wildly volatile interest rates and risks in the cryptocurrency market through weekly auctions of fixed-rate loans.
Term Labs has already raised over $100 million through lending platform Term Finance and, after closing a $5.5 million strategic funding round, is set to raise more in the near future, bringing the company's cumulative funding to over $8 million.
The latest funding round was led by Electric Capital, with participation from Maelstrom (Arthur Hayes), Ava Labs Blizzard Fund, Arete Capital, Inception, Delta Blockchain Fund and others.
Founder and CFO
Term Labs Inc.
Angel investors in the round include Ether.fi CEO Mike Shiragadze, Paper Ventures General Partner Danish Chaudhry, Neoclassic Capital Managing Partner Steve Lee, Up-Only co-host Ledger Status, The Ether Podcast co-host Eric Conner, and The Edge Podcast co-host Defy Dad.
Dai Yu, Term Labs' founder and chief financial officer, said the new funding will enable the company to further its business development efforts with a goal of reaching $1 billion in financing next year.
Since its founding in late 2022, Term Labs has emerged as a leader in research and development of blockchain, a digital ledger that stores information about cryptocurrency transactions and other data.
The company was formed in the wake of several high-profile crypto collapses and scandals, including FTX, the crypto exchange led by Sam Bankman Freed, and Genesis, the crypto lender that collapsed and agreed to repay $2 billion to lenders it defrauded in May.
“CeFi[centralized finance]lending lacks transparency,” Yu said, describing Genesis as a black box that hides how clients’ investments are being used.
“Essentially, we wanted to move from trusting people to trusting code,” Yu said, adding that term financing is a way to replace crypto lending institutions with smart contracts that execute loans using collateral and fixed interest rates.
“That's kind of our goal, to replace companies like Genesis that go bankrupt,” he said.
How the auction works
Term finance auctions are announced approximately two weeks in advance, allowing lenders and borrowers to confirm key information such as the origination date, the term and maturity of the loan, the assets from which the loan is issued, and the collateral required to secure the loan.
A filter feature allows users to find auctions that meet their criteria, such as loans with a four-week term. Auctions are usually open for 12-24 hours and allow users to submit bids or offers to secure a loan at a fixed interest rate.
For example, a lender interested in loans in the digital currency USD Coin can specify the amount they want to lend and the minimum interest rate they are willing to secure the loan.
Lenders can create multiple offers of different sizes and interest rates and submit them all at once. Interest rates change depending on the size of the loan.
For borrowers, users search for the loan amount they want, the maximum interest rate they are willing to pay, and the collateral to secure the loan. The auction closes, followed by a smart contract, a digital agreement that automatically takes action when conditions are met.
Borrowers who are approved for loans receive the loan amount minus servicing fees.
Safer, more transparent
“The protocol’s early adoption by institutional investors was primarily due to its focus on security, transparency and mitigating financial risk,” said Dion Chu, founder and CEO of Term Finance.
Term Finance is believed to be the first DeFi (decentralized finance) fixed-rate lending protocol to operate effectively at institutional scale.
Founder and CEO
Term Labs Inc.
DeFi lending offers several advantages, including more favorable interest rates than those offered by traditional banks.
“My background is in fixed income, and one of the things that was missing in the DeFi space was the lack of fixed interest rates,” Yu said.
While there are other fixed-rate DeFi lenders today, Yu said Term Finance pioneered the auction model for loan origination.
Scalability is also a feature, he says.
“Our target audience is larger institutional investors as opposed to other platforms that are more retail-oriented.”
Yu said Term Labs is a Delaware C corporation, incorporated under Delaware law but headquartered in San Diego. Term Finance is owned by the Term Foundation in the Cayman Islands.
Term Labs Inc.
Established: 2018
CEO: Dion Chu
Founder: Dai Yu
Headquarters: San Diego
Business: Cryptocurrency loan protocol
Funding: $8 million
Number of employees: 5
Website: https://www.term.finance/
Social impact: The company aims to make crypto lending more transparent and stable.
Highlights: Term Finance has funded over $100 million in loans since inception
