A few years ago, Ken Olling started seeing more of his friends investing the majority of their salaries in cryptocurrency.
“It got to the point where when I was going out with my friends, they all had seven-figure portfolios, but I was the one buying dinner,” said Olling, co-founder and CEO of Meld, a crypto lending startup launched on Aug officially starts on Thursday. “I had the money, but they were seeing double-digit monthly gains in their portfolios.
“Anyone who owns cryptocurrency knows that feeling: they don’t want to leave their long position, but they have to live their life,” Olling said.
His startup Meld is creating a crypto lending protocol that will work with traditional banks to provide loans in fiat dollars with cryptocurrency as collateral.
The Singapore-based company raised $45 million in a private token sale that ended on Thursday. It has a team of 45 people.
It joins a growing market of crypto lending platforms that allow cryptocurrency holders to keep their digital assets and still derive some value from those assets, such as: B. Interest or a loan. Crypto lenders compete with traditional banks but have radically different business models. Instead of analyzing FICO scores, debt-to-income ratios, and other determinants of creditworthiness, many use cryptocurrencies as collateral and hedge themselves by lending less than the cryptocurrency is worth.
This is also Meld’s model. It plans to start lending outside of the US and hopes to eventually do business here when crypto lending regulations are put in place. It will also share profits with stakeholders, people who buy Meld tokens.
The market that Meld enters is already a bit crowded. Existing platforms similar to Meld’s include Aave, MakerDAO, Compound, Alchemix, PhoenixDAO, and Venus.
“We do a lot of the same things that Aave and Alchemix do, but we bring the real world of fiat and banking to it,” Olling said. “With Aave you can borrow crypto to borrow crypto, with Meld you can borrow crypto to borrow fiat. With Alchemix, you can get a loan that pays itself, but you can only borrow more crypto. Our goal is to bring these concepts to the real world just from the crypto world.”
According to Rob Enderle, Principal Analyst at Enderle Group, the existing decentralized crypto lending platforms have a different focus than Meld’s.
“Meld is the first one I’ve seen that’s really trying to offer a crypto service to Joe Public,” he said. “By contrast, the other services are more focused on most of the early crypto investors who were far more technology-oriented. Conceptually, Meld is the closest thing to a bank, as opposed to a collaborative crypto service.”
Meld is also the most incomplete crypto lending platform right now, Enderle notes.
There will also be an “uphill battle because banks will no doubt see the Meld model, which aggressively shares profits with token holders and customers, as a profit risk for banks,” Enderle said.
And of course, the question is whether US regulators will ever allow Meld’s form of crypto lending in this country.
Because of this, Meld plans to launch outside of the US. It will be launched first in Europe, then in Asia and Africa.
“The US still has a moving target when it comes to these types of regulations,” Olling noted. He estimates that 63% of all crypto users are outside the US. “Once we have the protocol in place and things are working well, we will move to the US where we can turn on regulators and do things by the book once the regulations are clearer and more defined.”
This is a wise move, Enderle said, as US regulators are particularly resistant to change.
“If they’re successful abroad, popular support should force their approval in the US market,” he said.
How it works
The Meld protocol runs on the Cardano blockchain. According to Olling, no single node controls any other node and the blockchain uses a consensus mechanism to verify transactions.
A customer wishing to take out a crypto loan from Meld accesses the service through a website or mobile app. The customer moves a cryptocurrency to the Meld platform; that crypto serves as collateral for the loan.
To account for the volatility of the cryptocurrency, Meld loans are over-collateralised. A user with $100,000 worth of bitcoin could be eligible to borrow $50,000 in fiat currency.
“We don’t do leverage,” Olling said. “We try to avoid as much risk as possible.”
Once the crypto is transferred to Meld, the customer keeps the keys to it, but this digital currency security is locked in a smart contract. Terms of the loan, such as B. the loan-to-value ratio, margin calls and a liquidation event point are defined in the smart contract.
Banking partners will provide fiat liquidity and technical access to bank accounts to allow customers to receive fiat currency loan funds in their bank accounts. Today, Meld has three banking partners, Olling said. The company is in talks with a US bank and some European financial institutions.
When all the conditions of the smart contract are met and the loan is repaid, the crypto is unlocked and the customer gets it back. Meld also offers a crypto-backed line of credit that works with the Meld debit card, which customers can use online and in stores.
Both types of credit are “a much more open, transparent, democratic and non-nation-state model” than what’s available today, Olling said.
The Meld protocol itself generates a return on the secured assets. This revenue goes into the treasury of the Meld protocol and becomes profit for people who “stake” on the protocol – in other words, clients who own Meld tokens and place the tokens in stake pools as insurance against contingencies events on the platform.
“You secure the protocol and in return for the risk you take by putting your tokens there, you get 40% of any fees generated by the protocol,” Olling said.
Olling expects Meld’s service to go live in the fourth quarter of this year. Meld needs time to complete the development of the protocol and acquire the licenses it needs to handle fiat currencies and lend.
Who will use this
Meld positions itself as a provider of decentralized financing for the sub-banks. In the US at this point, the majority of people buying cryptocurrency are high-income white males.
But in countries like Nigeria and Argentina that have extreme deflation, people “naturally gravitate towards the properties of crypto because it gives them a way to store value that isn’t subject to any national interest,” Olling said. “This is in stark contrast to the US, where it’s largely a speculative decision – you buy into crypto hoping to make a whole lot of money. Crypto is being bought into in Nigeria because the naira is going to go down.”
The two fastest growing groups of crypto buyers are women over 50 and people under 18, Olling said
For every crypto investor, “you still have to live your life: get food, buy a car, get married, buy a house,” Olling pointed out. “We want to enable people to take whatever crypto they have and lend fiat for it so they can get on with their lives but still be exposed to the long-term benefit.”