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Options for borrowing and lending with cryptocurrencies are on the rise. One of the latest start-ups to join the likes of SALT and Unchained Capital is BlockFi, a New York City–based startup that issues loans backed by bitcoin and ether to individuals, companies and institutions in 35 U.S. states.

Collateralization of cryptocurrency assets benefits retail borrowers by allowing them to hold onto their crypto assets rather than selling them in order to make large purchases, like buying a car. They can also save on taxes by borrowing against crypto assets versus selling them.

Corporate and institutional borrowers realize similar benefits as well as some others, including access to fiat liquidity to support day-to-day business operations, third-party verification and auditing of crypto asset holdings, and the ability to make large crypto-backed investments in other markets.

BlockFi takes cryptocurrency as collateral, offering interest rates on loans of around 12 percent. This is generally lower than unsecured loans and higher than loans secured with traditional assets such as securities or real estate.

BlockFi’s founding story starts with CEO Zac Prince’s experience working with a bank in Texas to get a mortgage. He had taken out an earlier loan with the same bank before he started to invest in cryptocurrencies. On his second loan application, in mid-2017, he included bitcoin and ether among his assets. The bank had never heard of bitcoin before and almost stopped working with him when they googled “bitcoin” and learned that “Bitcoin is mainly used by money launderers and drug dealers.” It was then that Prince saw an opportunity to provide a lending product to serve the borrowing needs of cryptocurrency holders and started to develop a plan for what would become BlockFi.

Prince and Flori Marquez founded BlockFi in New York City, securing $1.55 million in seed funding on February 13, 2018, from strategic partners ConsenSys Ventures, Kenetic Capital, PJC, SoFi, Purple Arch Ventures and Lumenary.

Prince summarized BlockFi’s partnerships, telling Bitcoin Magazine, “We were fortunate to have a strong interest in our seed round and are excited about the strategic value that our investor base adds to our efforts. ConsenSys provides connectivity to the ecosystem via the ConsenSys mesh that BlockFi will leverage in building out our platform. Kenetic Capital is based in Hong Kong and will be valuable as we consider raising capital and expanding into Asian markets. PJC has deep experience and a strong network of regulators. SoFi is the largest and most successful online lender and will provide strategic guidance on capital markets and product development. Purple Arch is part of the Ivy League venture network and has a strong community of professionals. Lumenary is a service provider and investor in BlockFi — they provide branding, design and other marketing services.”

BlockFi will announce additional funding in Q2, which will primarily be used for funding loans, with a Series A equity raise expected in the second half of 2018.

BlockFi is a secured lender, holding clients’ crypto assets in a storage address maintained by licensed digital asset custodian Gemini Trust Company, LLC. BlockFi then sends the loan money to the client’s bank account. The client makes monthly interest-only payments on the loans.

Prince told Bitcoin Magazine, “We have issued both consumer and business loans to date, ranging from $5,000 to $250,000 USD. We should have an announcement coming out in early Q2 regarding a capital partnership that will give us the capacity to lend up to $2,500,000.”

In the long term, BlockFi wants to offer customer choice for custody solutions with integration into custody platforms, allowing customers to receive their loan from BlockFi without moving their crypto funds out of storage.

There is broad recognition among cryptocurrency market observers that crypto asset holders need easy access to debt beyond short-term, fragmented, margin-trading options. This new liquidity might facilitate scale and reduce volatility, thus establishing cryptocurrency financial infrastructure as “asset-class worthy” and cryptocurrency itself as “just another asset class” such as equities, bonds and art.

Though established financial services players are aware of the need for lending options in the cryptocurrency ecosystem, the consensus is that lending must come first from outside of traditional sources. Banks are not yet ready to build lending products for crypto markets. Banks may eventually enter the space, perhaps offering lower interest rates, but, as with other financial markets, there will still be lots of room for smaller players offering more personalized services.

Prince said, “We are quite a ways away from banks valuing crypto assets as collateral and making direct loans to individuals or businesses based on their crypto asset holdings. Banks are very slow moving and risk averse. Even in markets where there isn’t a regulatory concern, like unsecured consumer or student lending, there is room for non-bank lenders like SoFi and Lending Club to build large businesses. We believe that, if banks do decide to participate, the market will have experienced material growth and regulatory clarity. There will be a rising tide that lifts all boats, giving BlockFi the ability to become large enough that we are able to compete with banks directly, or partner with them for access to capital or as a licensing partner of our technology.”

Crypto-backed loans themselves may become securities that are transferable through existing financial channels. Prince told Bitcoin Magazine, “This could happen in a number of different ways: for example, with asset-backed securitizations or via different fund structures that pool loans, potentially as a tokenized security listed on regulated exchanges. BlockFi is considering both constructs as part of our longer term capital diversification strategy. We could be in the market with something as early as H1 2019.”

Prince continued, “There are also projects like Dharma.io which are working on tokenizing loans. Loans themselves are not securities and can be bought and sold freely so long as there is a properly licensed originator of record. These markets are pretty thin in traditional sectors, so it’s difficult to envision a path where there are tokenized loans that trade regularly but it is feasible. It’s also possible that lending against crypto assets becomes more like margin lending and securities-backed lending in the equities markets, where it is an add-on feature offered by the largest broker dealers.”

The opportunity for lenders to assign a global price to digital assets and underwrite risk similarly across national borders may grow stronger over time. Low-cost, crypto-backed credit may become available in markets where it previously was not available, providing access to cash credit that could expand economic activity in developing economies around the world.

Prince said, “We believe that the digital and global nature of crypto assets is one of their most valuable qualities, and [we] see an opportunity to offer access to low-cost credit in markets where it historically hasn’t been available. India, Mexico and South America are of particular interest to us.”

This article originally appeared on Bitcoin Magazine.

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