Archblock, a core developer of the unsecured lending protocol TrueFi, is collaborating with Adapt3r to bring decentralised finance to US-regulated community banks (DeFi). Adaptr3 is a subsidiary of alternative asset manager MJL Capital. The collaboration will aim to increase access to on-chain credit products while lowering the cost of capital for traditional financial institutions.
The announcement comes at a critical time when undercollateralised lending protocols are dealing with widespread loan defaults. DeFi promised to make lending without collateral less risky and more transparent for investors. However, loans to high-risk crypto trading firms that went bankrupt have resulted in bad debt piling up on protocols like TrueFi and Maple.
Archblock and Adapt3r will collaborate to provide on-chain access to low-risk DAOs, institutional investors and traditional credit products for corporate treasuries. Users, who have done their KYC, will be able to hold Lending Pool (LP) tokens. This will be available rather than simply signing off-chain agreements. It will allow the community members to monitor the portfolio position in real time. Archblock's chief investment officer, Bill Wolf, said that the company had been looking for a business partner for more than a year before coming across Adapt3r.
He said, “We were looking for somebody who had experience on the capital allocation side, the structuring side, and also deep relationships with actual customer banks and the underlying issuing banks…and that’s what [Adapt3r] had.”
Notably, Auros, an algorithmic crypto trading and market-making firm, was recently saddled with a $2.4 million USDC debt to credit pools on uncollateralised DeFi lender Clearpool, which it was unable to pay. Due to the missed payments, Auros' credit rating on the platform dropped to a C, reducing its desirability as a counterparty. Facilitators such as Archblock and Adapt3r hope to reduce such incidents while encouraging non-crypto native institutions to join in.
According to Marcus Leanos, co-founder and Chief Executive Officer of Adapt3r, “While DeFi has the potential to generate more immediate traction with underserved individuals and businesses, it will also face challenges with adverse selection, where unqualified borrowers are able to take advantage of the system. To address this issue and continue growing, DeFi needs to onboard high-quality, established assets and originators. Only by gaining traction in both high-risk and low-risk areas can DeFi make a significant impact on the global economy.”
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash