Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Crypto Valley Live (ID: cryptovalley)

Crypto Valley Live (ID: cryptovalley)

, Author: IDEG (Kevin Yang, Cara Cao, Leo Zhu, Damon Shen), translation: Sherrie, reproduced by Odaily with authorization.

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Since the beginning of the year, a sudden epidemic has swept the world. The world economy is slowly recovering after falling into the abyss of recession in April during the "Great Lockdown". But as the virus continues to spread, many countries have slowed the process of reopening their economies, and some have reimposed partial lockdowns to protect vulnerable populations. The World Bank predicted in the "Global Economic Prospects" report released in June this year that the global economy will decline by 5.2% in 2020, which is "the worst economic recession since World War II."

In response to the global spread of the epidemic and the slump in capital markets, central banks of various countries have adopted an unprecedented "big release" policy. On March 15, the Federal Reserve announced that it would cut interest rates to zero and launch a massive quantitative easing program of $700 billion. The Fed's total assets expanded rapidly from $4.16 trillion at the end of February to a peak of $7.17 trillion on June 10. As of October 28, the Fed's total assets still exceeded $7 trillion.

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Data source: Morgan Stanley

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Data source: IDEG

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Data source: IDEG

British Prime Minister Winston Churchill once said: "Never waste a crisis." In the era of the new crown epidemic superimposed and flooded, some Smart Money used digital assets to find an interest rate market with greater opportunities.

CeFi lending market overview

We say that 2020 is the first year of institutional investment in digital assets in the "true sense". This is not only reflected in the total asset scale of Grayscale's trust products exceeding US$10 billion, but also in the rapid development of the digital asset lending market. The ultra-high returns of DeFi lending projects are so eye-catching that the development of the CeFi market has been ignored by most people.

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Institutional clients dominate the CeFi lending market. In the second quarter of 2020, the stock loan ratio of institutions and retail investors was 3.5:1; the collateral value ratio of institutions and retail investors in the same period was 2:1. From the ratio difference between existing loans and collateral value, it can be found that institutional customers do have a very obvious advantage in the pledge rate.

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1. Genesis Trading

Data source: Credmark

Big players in the CeFi lending market

Genesis Trading is a subsidiary of DCG Group, integrating OTC, derivatives, lending, custody and other businesses. Genesis was formerly the trading department of SecondMarket. The founder of DCG, Barry Silbert, founded the private equity trading platform SecondMarket in 2004, providing a trading platform for the equity held by employees of unlisted companies and early investors. Since then, it has grown rapidly with the development of Silicon Valley technology companies such as Facebook. Its equity business Acquired by Nasdaq Exchange in 2015. In the previous few years, Barry Silbert had already developed a strong interest in Bitcoin. In 2012, he took out $175,000 of his personal funds to buy a large amount of Bitcoin at a price of $10, and when the price reached $50, he Wholesale sold, the huge gains made Barry Silbert decide to take more action on the market. Barry Silbert directly promoted SecondMarket to set up the embryonic departments of Grayscale and Genesis Trading, and later retained the above businesses when SecondMarket was acquired. In 2015, Barry Silbert established DCG by integrating these two sectors with his personal investment business, officially starting his journey as a "giant whale" in the cryptocurrency industry.

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Data source: Genesis Trading

In terms of deposit business, Genesis is also developing rapidly. In the third quarter of this year (especially in September), a large number of institutional investors deposited assets into Genesis. In the third quarter, the number of institutional clients of deposit business increased to 165, a quarter-on-quarter increase of 47% and a year-on-year increase of 275%.

2. BlockFi

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In addition, Genesis successively acquired Qu Capital and Vo1t in order to expand business pipelines such as lending, trading, and custody. Qu Capital is a quantitative investment company. After being acquired by Genesis in September 2019, it has greatly enhanced Genesis' technical strength in trading and lending products. In May 2020, Genesis successfully acquired Vo1t again, bringing the hosting business into its own territory. Since then, Genesis has completed the last piece of the puzzle, integrating various original businesses into a prime brokerage business (Prime Brokerage).

BlockFi was established in 2017 and has received investment from many top institutions in the industry. In the past two years, it has occupied a considerable share in the European and American retail lending markets. At present, BlockFi has begun to target the institutional market, and is also actively deploying in the Asia-Pacific region. Founder Zac Prince has many years of experience in online lending platforms. Interestingly, during a Reddit AMA event, Zac also revealed that he is a successful professional poker player.

In August this year, BlockFi completed a US$50 million Series C financing, led by Morgan Creek Digital, with participation from CMT Digital, Castle Island Ventures, and Winklevoss Capital. The new funds will be used to expand the team and further expand BlockFi’s reach, including an upcoming “Bitcoin Rebate” credit card, the announcement said. In addition, it is worth mentioning that the custodian of BlockFi is Gemini, and it is not difficult to understand that it has received investment from Winklevoss Capital.

3. DrawBridge Lending

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Maybe BlockFi is not the first in terms of business volume, but it is outstanding in terms of business innovation capabilities. Through the extension of the lending business, BlockFi has become the largest shareholder of Grayscale Bitcoin Trust (GBTC). As of October 2020, BlockFi holds a total of 5.07% of the GBTC trust. According to the market price at that time, the assets were about 328 million US dollars. As BlockFi founder Zac said, investing in GBTC is one of his efforts to better serve customers.

DrawBridge Lending has to attract the attention of the industry because of its team's profound traditional financial experience and shareholder background. Established in 2018, DrawBridge is a CFTC-certified Commodity Trading Advisors (CTA) and Commodity Pool Operators (CPO). DrawBridge team members have been deeply involved in the traditional financial industry for a long time, have extensive experience in trading, brokerage, lending, law and finance, and are known for their innovation in derivatives investment strategies. DrawBridge has strong business capabilities in structured products. Currently, it has launched digital asset commercial loans/personal loans for high-net-worth individuals, mixed investment loans, and individual retirement account loans (Crypto IRA Loan). The advantage of DrawBridge's loan is low interest rate and no "margin call". According to the data disclosed on its official website, as of July 2020, the asset management scale of DrawBridge has exceeded 150 million US dollars.

On November 13, 2020, Galaxy Digital, an American digital asset commercial bank, announced the acquisition of DrawBridge and another market maker, Blue Fire Capital. Galaxy Digital is the world's first multi-strategy and all-round commercial bank focusing on the field of digital assets, operating multiple businesses including investment, trading, consulting, securities brokerage, and asset management. Founded by the legendary Wall Street billionaire Mike Novogratz, the company is based on building a "Goldman Sachs" in the field of digital assets. Mike Novgratz was the chief investment officer of hedge fund giant Fortress Investment Management. This acquisition is of great strategic value to Galaxy Digital Trading (GDT). GDT is one of the four main business lines of Galaxy Digital, with an annual OTC transaction volume of more than $4 billion, occupying a large share in the institutional market. Through the acquisition of DrawBridge, Galaxy Digital will greatly enhance its business capabilities in lending and structured financial products.

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Industry Outlook

IDEG（https://ideg.com/In addition to the three institutions mentioned above, there are more familiar players in the field of digital asset lending. For example, there are PayPal Finance, Matrixport, RenrenBit and other institutions in the Asia-Pacific region, and they occupy a major share of the Asia-Pacific market. Companies such as Coinbase, BitGo, and even Blockchain.com in Europe and the United States are also actively exploring the lending market. According to official news on November 24, 2020, Japanese financial giant SBI Group officially launched digital asset lending services through its subsidiary SBI VC Trade. With the entry of more and more institutions inside and outside the industry, the digital asset lending industry has begun to enter a pattern of fierce competition.