Whether operating in CeFi, DeFi or TradFi, all lending businesses come with risks. To succeed, an experienced lender must manage those risks and protect the assets that clients entrust to them, particularly during times of volatility. To do so, prudent lenders combine robust credit underwriting and credit monitoring practices with strong and sensible risk management protocols. Not every lender is created equal in this regard.
With several legacy CeFi lenders no longer active, some investors are left wondering whether DeFi lending is the next logical step. While developments in DeFi lending have shown some promise in this past cycle, there are things that DeFi is not built to offer, such as bespoke loan terms to meet unique customer needs, issuing a Bitcoin-backed mortgage on a real-world asset, offering customer support, among others.
Furthermore, CeFi lenders, whether in crypto or TradFi, bring value to the crypto lending ecosystem that simply cannot be replaced by algorithms today, such as:
- Leveraging their large distribution networks to aggregate assets on a scale which unlocks access to the world’s top institutional borrowers and more favorable terms and rates.
- Developing and managing strong relationships with institutional borrowers which have no capacity or appetite to establish direct relationships with asset holders or interact with algorithms.
- Helping balance capital flows in the crypto industry.
- Managing systematic risk of the whole lending ecosystem by optimizing the diversification of asset providers and the borrowers of these assets.
- Facilitating products whereby clients can combine their digital assets and their real-world assets, like the Bitcoin mortgage.
Although Ledn had exposure to FTX and Alameda, Ledn fully absorbed the impact of such exposure with no clients’ assets impacted. Instead of pausing withdrawals like some of our competitors, we processed them in record time during the turmoil. Clients put their faith in Ledn’s ability to execute on its sound risk management policies and procedures when called upon, and as designed, Ledn did just that.
Crypto still needs capital management, and many within the industry are looking for partners who will help them manage their holdings prudently and responsibly. Ledn will continue to re-examine and strengthen its risk management program. We pioneered Proof of Reserves for the industry, and we are evaluating how we can raise the bar even further by incorporating even greater transparency and client control into its product innovation. At Ledn, we are in a privileged position to lead and reshape the digital asset lending industry moving forward.
Mauricio Di Bartolomeo is the Co-Founder and Chief Strategy Officer of Ledn Inc. He is the author of The Bitcoin Economic Calendar, a weekly market insights newsletter. Check out https://blog.ledn.io/en to subscribe.
This post is commissioned by Ledn and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.
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