Breaking point: The demise of untransparent centralised crypto lending in 2022
The year 2022 marked a pivotal transformation in the crypto lending realm, as large centralised platforms such as Celsius, Blockfi, and Voyager filed for bankruptcy. These events underscore the potential systemic effects of opacity and emphasise the necessity for increased transparency, more thoughtful due diligence, and risk management.
The collapse has created a void in the sector: centralised lenders that are currently in bankruptcy were holding $55B at peak. This situation presents an opening for entities capable of establishing a robust reputation through maintaining high professional standards, transparent operations, regulatory compliance, and an overarching focus on institutional lending.
Maple Finance: Bringing credit markets on-chain
Maple Finance is the leading on-chain platform for credit specialists to operate lending businesses. These lending businesses are showcased on Maple’s lending marketplace found at app.maple.finance, where institutional capital allocators find lending opportunities that align with their liquidity, risk, and return preferences. Since launching in 2021, Maple has successfully facilitated the origination of +$2B in loans from 15 diverse pools.
Maple operates through lending pools that are managed by delegates who underwrite commercial loans. Currently these delegates are a mix of TradFi (e.g., Room40, AQRU) and Web3-native firms (e.g., Maven11 Credit) firms, with several larger TradFi credit funds in the pipeline. These delegates play a pivotal role in sourcing, due diligence, determining loan terms, and providing first-loss capital.
Through the launch of Maple Direct last month, the Maple team have also become delegates and operate a pool which provides overcollateralised loans secured by BTC, ETH, and staked ETH using new technology developed by Maple in partnership with Qualified Custodians.
Maple's offerings are becoming increasingly attractive due to four key factors.
Transparency has become increasingly important following the collapse of centralised crypto lenders in 2022. Lenders are now eager to understand the liabilities in a transparent and auditable way.
Institutions are starting to dip their toes into on-chain finance. BlackRock CEO, Larry Fink, has said that tokenisation is “the next generation for markets”. JPMorgan executed the first live currency trade on Polygon. The Monetary Authority of Singapore’s Project Guardian is also conducting DeFi pilots with trade finance and working capital loans.
The combination of cost-efficiency and the global reach through stablecoins opens up new lender and borrower segments. Our research indicates that Maple’s infrastructure could potentially boost margins of nascent credit firms by up to 2.5x, primarily driven by back-office automation enabled by smart contracts. This opens up a previously untapped market segment of small credit funds where unit economics previously didn’t make sense. The global accessibility of stablecoins and the emergence of smaller-scale ticket sizes driven by cost efficiencies also extends safe yield access to unbanked small businesses.
Favourable macroeconomic tailwinds such as high interest rates are intensifying the opportunity cost of holding stablecoins (~$110B of USDC and USDT) on-chain. This would drive adoption of a trusted brand providing T-bill yields to KYC’d lenders.
Today, Maple continues to expand into Real-World-Assets (RWA), offering exposure to US Treasury bills, receivables financing, and other assets in the future, such as trade finance, energy finance and accounts receivable factoring. As outlined in our RWA thesis, we are excited by this vertical and Maple Finance has a unique positioning, network, and expertise to succeed here.
The Maple team: Extremely resilient and agile
Sidney Powell (Sid) and Joe Flanagan co-founded Maple in 2019. Sid has a background in credit and securitisation at the National Australia Bank (NAB). He met Joe at a Fintech lending startup, where Joe was CFO and led the company to IPO. They connected over the idea of on-chain credit markets, and the rest was history.
Needless to say, Maple has faced many ups and downs in the depths of the bear market, especially during the CeFi lending crisis and collapse of FTX. Nevertheless, the team has been persistent in the face of adversity and during high pressure situations. Sid and Joe continue to build and pivot to navigate the challenging environment.
As demand from market makers lowered in the bear market while T-bill rates were skyrocketing, the team quickly launched the Cash Management and Receivables Financing pools as an avenue for diversification.
The Maple team continues to amaze us with their thoughtfulness and long-term thinking on Maple’s strategy of bringing TradFi on-chain. The Tioga team is equally excited about Maple’s long-term vision and are energised to be a sparring partner on ideas to advance the space.
If you are a startup, on-chain fund, DAO, protocol or investor looking for an on-chain cash management solution or private credit opportunities, we welcome you to reach out to us (pitch@tioga.capital) and we’ll make a warm intro to our friends at Maple Finance.
Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the author(s) and does not necessarily reflect the opinions of Tioga Capital. The opinions reflected herein are subject to change without being updated