HODL as Collateral - Crypto Lending 2.0 - TOKEN2049 Singapore 2024

hey everyone um thanks for joining late in the day I've been asked to take a few minutes to give you an update on what we're working on in Abra uh as it relates to collateralize lending so we all know the phrase you should never sell your Bitcoin that's great but what do you actually do with the Bitcoin when you don't sell it so that brings us to this idea of why why borrow against crypto instead of selling it in the first place so if you live in a market where you have capital gains implications you can avoid tax implications you can preserve upside potential if you believe Bitcoin is going to Valhalla as I do or ethereum salana whatever your your favorite token is that you could potentially borrow against you can immediately access liquidity so we've all heard these benefits advantages to uh keeping our crypto and borrowing against it however uh if you've been around for more than a couple of years you know that we've tried this before and it didn't work out so well so we went through this kind of centralized Finance version of uh lending against uh Bitcoin and ethereum and as I said it didn't end very well uh there's a lot of centralization risks with the 1.0 model uh transparency issues people didn't understand where their collateral was going and many cases uh it went poof out the window a lot of security vulnerabilities these were centralized pools of assets and so if something happened to the centralized pool basically all of the assets could be gone right and not to mention the regulatory challenges that entire industry faced so that brings us to today where now of course we have Defi and I'm not going to explain defi to this room uh I spend a lot of my day uh explaining dii to registered investment advisers wealth advisers High net worth families uh this room gets it we understand the transparency and the fact that we've got an always on you know 247 always on globally accessible Network we we get all that so however we generally think these days about yield when it comes to Defi and I want to dig in for a minute uh specifically around lending as it relates uh to defi right so you know we believe that as defi is democratizing finance enabling Financial inclusion because the networks and the protocols are accessible all over the world we're going to see an entirely new kind of lending model emerge in the next couple of years right we're going to see not only decentralize lending platforms based upon uh peer-to-peer models but we're also going to see a a an emerging set of user experiences that take advantage of this that we've never had before right up until now defi has basically only been accessible to the computer scientists in the room or the degens in the room that can really dig in and understand how metamask works and how how to basically integrate uh back do Key Management etc etc you talk to you know the average person who might hold some Bitcoin and want to borrow against it you explain that model and you've probably lost them within within a minute and so at Abra we've developed an entirely new model which is effectively a hybrid of the best of all of the D5 protocols that are out there along with a a a really simple easy to access user experience that allows people to access dii directly in a very simple you know in like experience along with a set of compliance models that prevent things like pooling of funds uh and all of the issues that we had with the kind of crypto lending 1.0 model so let me take a couple of minutes and show you exactly the pieces of this how they play together and how it all works so the first piece is custody so with the again with that kind of lending 1.0 model whether you were doing yield or lending your collateral when went into a big pool of assets which effectively became a liability on the lender balance sheets and when they went bankrupt everybody had to fight with the bankruptcy core to get their assets back right with the new model you actually legally retain title to your collateral what does that mean in technical terms well each individual borrower gets their own Vault it uses MPC technology and as a result there 's no comingling of collateral you actually sign your collateral to a defi contract in order to borrow which you can actually verify on chain now most of our users wouldn't necessarily understand everything I just said but those of you who understand the tech can recognize that we're actually now starting to use dii and smart contracts the way they were in my opinion intended to be used on an individual user byuser basis so this idea of kind of segregated accounts and user vaults enables all borrowers or even yield uh account holders to retain title to their assets so that if Abra goes away you're not fighting a bankruptcy CT or some other process to get your assets back which I think is super interesting so that's that's the the custody aspect of this the second part is is the credit enablement itself so what does credit enablement uh mean so the first part of this is determining what your collateral is can be ethereum Bitcoin Solana etc etc uh we have a team of analysts qu quantitative analysts that are analyzing all of the popular dii protocols in order to determine which protocols make sense to make available to our clients so if the protocols are not liquid if they're not battle tested if they you know having pass security audits we don't recommend them to our clients and as an SEC registered investment advisor in the United States we actually do significant amount of risk disclosures on each of the protocols that we U uh make available to our clients through these uh vaults or separately managed accounts that I mentioned before and our clients can then pick and choose uh in some cases how they might want to earn yield or in this case how they might want to borrow and we're constantly looking at new protocols uh and new models for how to best make uh loans available using the DI model so the network itself is setting the interest rate just like you're familiar with with traditional defi which means that it's a supply and demand based system right we're not doing crazy markups we're not even legally allowed to do that right so so everything we do is disclose you can even go to the SEC website and you can actually read how we're using the protocols how the interest rates are set how our fee works so you have 100% legally mandated transparency on everything going on all the way up until the loan initiation the loan proceeds are exactly how they would work in a traditional dii model except it's through the Abra you know the pretty Abra interface you can take it as tether usdc or you can get a bank wire out where we're ly you know un minting the uh stable coins for you now the user up front chooses the loan to value ratio right they decide how much collateral they want to put up and how much they want to borrow against our team sits them down explains the idea of LTV if they're not familiar with it and explains what it means if you know the average user might take a 25 30 35% LTV which in English means if you're holding a million dollars worth of bitcoin you might borrow 300 $350,000 of usdc or tether what happens if the price of Bitcoin plummets let's say 50 60% something like that and my LTV reaches let's say 75% you then run the risk of actually getting partially liquidated on your collateral in order to put your loan back in compliance so we explained in very clear English to our clients what this means and again it's all disclosed in the risk documents that they get upfront so a very different model than you know what everybody here is used to but it's really starting to make this accessible to the average borrower High net worth borrower who wants to hold Bitcoin but doesn't understand what y allall are talking about when you start to talk about the nuances of the D5 protocols so so now they can basically set the LTV and borrow against it but what's really interesting is that if your if your LTV is low enough and our system let's say you borrow a 25% you have very high conviction that the price of Bitcoin is going to continue to go up over time we actually have many users who don't even pay the interest on the loan they simply roll over the interest in the into the principal which obviously raises the LTV of the loan if the price of Bitcoin is still the same but if the price of Bitcoin keeps going up the LTV can actually even decrease even if they're not paying the interest on the loan which is super interesting and at that point they can actually continue to borrow right so internally we call this kind of a lifestyle loan so if you're sitting on enough Bitcoin you can borrow a small amount and as the price goes up you can continue to borrow and not even pay back the interest if your LTV stays low enough okay uh and we have models that we share with our clients explaining how all this works and it's become an extremely uh popular way of of borrowing uh against against Bitcoin ethereum now salana even etc etc the the loan is effectively open term which means it can go on forever um the client can choose to close the loan anytime they can choose to change the LTV by um either making payments or adding collateral or taking away collateral which would raise the LTV uh if they feel that the price has has gone up enough which warrants not leaving as much collateral the system so we give them a lot of flexibility again the real Point here is they're getting the benefits of D5 without having to dig in and understand the ones and zeros of what's going on with the protocols themselves and our team is constantly looking at the best protocols to make available whether it's based upon tvl interest rates Supply demand etc etc okay so again as I said our take is is that this is is really the future of crypto lending it makes it available to the masses which is why we're all here we think that uh the future of banking is basically going to migrate to defi uh I wrote an article on coindesk yesterday which you can read I made the point that I think that in 10 years no one's going to be talking about defi anymore it's just going to be lending right and I think the biggest banks in the world may actually be new Banks that are based upon defi rails just like the biggest online video services today didn't exist 25 years ago when everybody went into a store to rent movies the next generation is just going to bypass the traditional system and go right to this model okay I think the disruptions around defi are going to completely reshape banking I think Abra is to my knowledge is the first company in the world to form u a US SEC registered investment advisory explicitly to make defi available U we want to make it available to everyone globally uh we're starting with high net worth investors just because it's easier uh to get going but you're going to see us push this you know further and further down the income pyramid over time and we also believe that Neo Banks and other uh kind of traditional uh nextg online banking services are going to adopt this model and we hope to be able to work with them uh via apis and and our platform uh to make this type of of lending and liquidity available for companies and partners who don't have the expertise um in this area I also think that you're going to see new types of collateral emerging that will be tokenized Beyond uh Bitcoin and and kind of layer one tokens I think you're going to see uh you know tokenized real estate and other types of of Commodities that will become collateralized that can be used in these defi uh lending models through this type of banking system over time so um my basic uh takeaways for you um are very simple you know we're here talking about the ones and zeros of dii in in in these halls but outside we're trying to make it super accessible to people um by basically giving them the best user experience possible making sure they understand the risks making sure they have a phone number they can actually call when they have a question or don't understand something um and dii because it works 247 implies that in many cases we need to be available to our clients 247 and we've even built like things like monitoring tools that they can see if the price of crypto is falling on a Sunday night what the implications are for for their uh for their LTV for example so we hope you'll uh go check out abra.com you can see how our lending and yield systems work if this is something you're interested in you can obviously just click on get started and the team will contact you but we hope you'll help us spread the word on this lending 2.

0 model and the benefits that it holds I think for the entire planet enjoy the show and thanks for joining