Is Crypto Institutional Lending Facing a Crisis? What’s the Next Wave?

Crypto’s Institutional Lending Market

Jamie Knowles, Director of Institutional Sales at Galaxy Digital, and Leeor Groen, Managing Director at The Spartan Group discuss the crypto’s institutional lending market. They identify the challenges and opportunities of the current crypto lending markets and how to restore trust and reduce counterparty risks in the ecosystem.

Failure of Actors Doesn’t Mean Failure of Crypto

Institutional lending in crypto has rapidly evolved in the past two years, with a growing willingness to use collateralized or uncollateralized lending products. Despite challenges faced in 2022, Leeor believes that it is not a failure of crypto or the ecosystem, but the failure of malicious actors.

The technological foundation that allows users to participate in decentralized finance (DeFi), borrowing, and lending pools has stood the test of time and remains resilient. In his opinion, the industry hasn’t experienced a technological implosion.

Jamie and Leeor discussed the crypto’s institutional lending market at the EBC23.

Restore Trust & Reduce Counterparty Risks Are Essential

Jamie identifies the huge counterparty risks in the industry over the past 12 months. There has been a significant drawdown in institutional loans on a notional basis. Both the demand and supply side of institutional lending in crypto has decreased due to the exit of some of the biggest players and many potential lenders.

Remaining lenders have become increasingly worried about counterparty risks and have pulled back significantly. They start to demand high collateralization levels that many borrowers are not willing to meet.

Jamie shared his insights on the institutional lending market at EBC23.

Leeor thinks that the industry needs to implement proper due diligence processes and standardized frameworks to evaluate counterparty risks. This includes asking fundamental questions about who the counterparty is, how many other people they are taking money from, and what their track record is. 

Standardization of diligence processes will ensure that all parties are on the same page and will reduce the likelihood of surprises. Leeor believes that by building connections, the industry can create critical infrastructure pieces that will be the foundation of the next wave of growth.

To restore trust in the ecosystem, Jamie thinks that the market needs time to recover. It’s important to implement better risk management practices and improve infrastructure for real-time monitoring. Zero-knowledge (ZK) technology is a potential technology to protect privacy.

Jamie and Leeor held an insightful panel about the institutional lending market at EBC23.

Bringing Institutional Players Into Crypto Lending

Leeor believes that lending and borrowing in DeFi is still in its infancy, but there is potential for significant growth. He thinks that the composability of liquidity is one of the biggest enablers to unlocking assets flowing into the crypto space. 

To bring traditional financial (TradFi) institutions to participate in DeFi, Leeor suggests that the basic infrastructure needs to be developed to allow them to participate in a meaningful way.

Watch the full panel to learn more about crypto’s lending market!

Investing in Crypto Assets: How to DYOR?

Panelists present how they analyze crypto assets at EBC23

This panel was moderated by Alex Wenham, Digital Asset Product & Strategy Lead at Bloomberg. Vangelis Andrikopoulos, Investment Analyst at CoinFund, Anais Rachel, Independent Analyst, and Matthew Sigel, Head of Digital Assets Research at VanEck, share how to DYOR when investing in crypto.

Taxonomy of Crypto Assets

Matthew states that from an end market perspective, the crypto assets can be categorized into three main markets: finance (worth $3 trillion), tech infrastructure (worth $500 billion), and an emerging metaverse market (potentially worth $2 trillion in 5-10 years).

He also points out various categories of crypto assets, such as consensus layer, execution layer, app-specific blockchains, and decentralized finance (DeFi), with differing characteristics like product-market fit, network effects, and cash flow.

Pay Attention to Blockchains Mechanisms, Tokenomics, DAO Governance, Userships, Developer Activities, and the Whole Ecosystem

Vangelis emphasizes the difficulty of coming up with a standard analysis method to value and invest in crypto assets. These tokens are programmable and there are a lot of variables that can change the equation.

Focusing on Ethereum, Anais reminds the audience that each blockchain and protocols have different tokenomics: burn mechanisms, token supply cap, or monetary policies. She states that the burn mechanism of the blockchain, such as Ethereum and Avalanche, is a direct result of how much the network is being used.

It’s also important to see which network has the most vibrant developer activities (such as the number of commits per developer on a quarterly basis) and daily active addresses (instead of the daily number of transactions).

Anais also highlights the importance of investigating the whole ecosystem. When she analyzes Ethereum, she also takes Layer 2 protocols, such as Polygon zkEVM, into account.

Vangelis recommends considering factors such as the estimated market share in five to seven years and decentralized autonomous organizations (DAOs) governance to see how the networks are kept safe and how the rewards are distributed.

A full house at the 8th European Blockchain Convention learning about crypto analysis.

Anais thinks the first step to investing in crypto assets is to understand what you are looking for as an investor. Researching the application layer will be different from investigating a consensus layer.

She uses data platforms, such as Token Terminal, to acquire relevant data, download it, and make assumptions. However, it’s important to keep in mind that road maps change, hacks occur, and there are hard forks. She shares that she wouldn’t project anything more than 10 years ahead of time, not yet in the crypto industry.

Not sure how to DYOR? Watch this panel to learn more about investing in cryptos!

The Next Big Business in Crypto is Staking

The Next Big Business in Crypto is Staking

A very enlightening discussion took place during the 7th European Blockchain Convention with Andrew Howell, Director Of Blockchain Engineering at Blockdaemon, Ben Spiegelman, Head of Corporate Development at Figment, James Hume, Global Head of Sales at Huobi Global and Maria Eneva-Olms, CEO at Ekolance. The speakers gave an overview of the staking business, explained the Ethereum Merge, its impact on the markets, and analyzed how institutional investors can participate in staking and what are the challenges and risks along the way.