Decentralized finance (DeFi) has started eating up syndicated loans.
Announced Thursday, Maple Finance, a lending platform that specializes in liquidity pools made up of institutions, has launched its first DeFi syndicated loan for Alameda Research, the trading firm affiliated with global cryptocurrency exchange FTX.
In the traditional world, a syndicated loan is financing offered by a group of lenders, usually banks, to borrowers that could be corporations, large infrastructure projects or governments. These loans tend to be denominated in the billions and are spread out among several lenders to mitigate the risk in case the borrower defaults.
In this instance, a whitelisted cohort of lenders including CoinShares, Abra and Ascendex have committed $25 million in capital at launch, with planned growth to $1 billion over 12 months, a press release said.
Maple describes itself as “an institutional capital marketplace built on the Ethereum blockchain,” which means providing infrastructure to help companies borrow money and expand, said Maple Finance CEO Sid Powell.
“What’s really important about it is that it provides firms with a way of directly accessing capital markets and institutional investors so that they can raise debt for themselves,” Powell told CoinDesk in an interview. “This is completely different to the way things have been done before. In a way, you could think of it as a kind of on-chain crypto SPAC [special purpose acquisition vehicle].”
There are two other unnamed institutional investors involved in the DeFi syndicated loan, which is restricted to accredited non-U.S. institutions, with all having been through anti-money laundering (AML) and know-your-customer (KYC) processing. Powell said the loans are paying fixed rates in the 8% to 10% range.
Maple Finance recently launched a permissioned institutional lending pool with BlockTower and Genesis (owned by CoinDesk’s parent company, Digital Currency Group). Unlike “traditional DeFi,” which relies on collateral that can be slashed in the event of underpayment, Maple allows users to issue uncollateralized or under collateralized loans to known entities based on reputation.
Powell sought to clarify what’s meant by “reputation” in this case.
“What’s happening here is that Alameda and the other borrowers are providing their financials – profitability, balance sheet strength – very similar to the underwriting that a bank would do if they decided to lend a large company money,” he said. “It’s different to what’s been done in DeFi, which needs to evolve. The fact is that no institution wants to put down $150 to borrow $100.”
DeFi is also eating enterprise blockchain’s lunch. Syndicated loans involving a heavyweight paper trail and numerous middlemen were touted as a promising use case for permissioned chains a few years ago.
“I think enterprises spent too long deciding how they were going to build the internet themselves, instead of building what they wanted to use on the internet,” said Powell. “We accepted that the internet of money for now is on Ethereum, and didn’t waste a lot of time trying to rebuild that. Instead, we just built purposeful infrastructure to support companies borrowing.”