Between crises at Celsius, Genesis, Voyager Digital and BlockFi, in the space of eighteen months, the crypto sector lost some of its biggest lending platforms. As a result, market liquidity has dwindled.
In an interview with CCN, Anthony DeMartino, CEO of Trident Digital, discussed how the loss of lending solutions has affected crypto markets and how the sector can move forward.
As a concept, “crypto lending” covers a range of different loan agreements. But across the diverse space, DeMartino observed that borrowing has dropped off significantly in recent times.
For the wider ecosystem, he observed that declining credit availability has resulted in less liquidity, even as the prices of major tokens have rebounded from last winter’s bear market.
As he remarked, “After FTX went down, we saw the prices come back at the beginning of this year, but the liquidity is still down.”
He added that “as the market was recovering, the liquidity was getting worse, and that’s 100% based on access to lending.”
For DeMartino, the collapse of crypto lending is a direct result of the bankruptcies of major platforms like the one operated by Genesis.
Regardless of what may have led to its ultimate demise, he noted that Genesis “created an infrastructure” that allowed high-net-worth individuals, crypto whales and mining operations to lend to market makers, such as hedge funds.
“When that evaporated overnight, there was no mechanism left to lend efficiently,” he said, adding that in the absence of infrastructure, “you have borrowers and lenders who want to meet, but there’s no venue in which to meet.”
As crypto businesses the world over attempt to rebuild a lending market that was crippled by a string of high-profile failures, they must learn from past mistakes.
In one emerging trend, some firms are pivoting away from the retail market to focus on large corporate clients. For example, Coinbase’s recently announced new loan platform will be exclusively available to institutions.
It’s an approach shared by Trident, which DeMartino said is “only interested in sophisticated institutional borrowers and lenders,” and will have “nothing to do with retail at all.”
However, that doesn’t mean he thinks retail crypto lending is a dead end.
Rather, DeMartino is of the opinion that “retail lending should migrate to DeFi, it should be overcollateralized and it should be done in such a way that the risks are a bit more transparent.”
Commenting on the Celsius Network, which is in the process of shutting down after its operator filed for bankruptcy last year, DeMartino said that the platform’s shadowy lending mechanism ultimately led to its downfall.
To prevent a repeat of Celsius’ failure, the Trident CEO acknowledged the need for regulated crypto loan products. But for that, regulators need to be open to the idea.
Unfortunately, in the US at least, the Securities and Exchange Commission (SEC) has refused to sanction retail crypto lending solutions.
For instance, Coinbase’s previous attempt to launch a loan platform—Coinbase Lend—was derailed by the threat of an SEC lawsuit before it ever hit the market.
Discussing Coinbase Lend, DeMartino said it was “disappointing that it was shut down by regulators because there was very little chance of that program having the failures we saw at Celsius.”
“The regulators killed a safe product while another unregulated, unsafe product grew in the shadows,” he lamented.