Crypto rich but low on cash?
With all the ICOs that have taken place (not to mention the meteoric rise in the value of crypto assets late last year), there are a lot of entrepreneurs who fit this description, but few products that allow them to turn long-term HODLing into actionable capital.
That's the idea behind a new subsidiary being started by Dominion Capital, a family office based in New York City. While the company has long invested in a variety of assets, Dominion's known for helping to finance projects by backing loans.
As it turns out, Dominion has also been quietly involved in crypto for years, and the firm believes now is the time to prove the worth of the nascent asset class by expanding its services into the sector.
"Community is a huge part of this movement," CEO Mikhail Gurevich told CoinDesk. "One of the tests of whether assets are legitimate is if people are willing to lend against them."
For the entrepreneurs who are willing to bet on the strength of their holdings, there's a strategic opportunity at play. Essentially, the service would allow individuals and projects to borrow against either their own crypto assets (or those invested by supporters) rather than converting them directly to cash.
As such, Gurevich expects the idea could even draw some of the largest ICOs, many of which have raised millions in assets that are hard to liquidate.
Gurevich told CoinDesk:
"We had a number of companies come to us who had raised an ICO to borrow with crypto as collateral. [There's] $1 billion-worth of demand out there."
Dominion, Gurevich said, will likely only offer loans against bitcoin at first, with the intention to expand into other currencies as it finds product-market fit.
In turn, Dominion's new company will take custody of the collateral for the life of the loan.
Still, it's worth noting that lending against bitcoin isn't exactly a new idea, and early movers in crypto lending didn't exactly succeed in building a large market.
Founded in 2013, BTCJam quit accepting new U.S. customers in 2016, citing regulatory concerns, and it aims to wind down completely on July 1, according to public statements.
BitLendingClub, founded a year later, also announced it would wind down in late 2016.
However, most of that group of efforts were launched in 2013 and aimed at the consumer market, which dried up over 2014 and 2015 as the price of bitcoin fell dramatically and there was more selling than holding going on.
Still, not all of these early ventures are gone. Another company from the same era, Germany's Bitbond, was able to hang on, raising $1.2 million in early 2017.
New companies have also seen the opportunity. SALT, which ran an ICO late last year, is advised by Shapeshift founder Erik Voorhees, and it offers fiat loans against crypto assets. Another is ETHLend, both of which were covered in an article on the use case by Bloomberg late last year.
Still, Gurevich argues that none of the existing efforts have the right mix of user experience, capital and strategic partners, and he believes Dominion can bring all three together in its as yet-unnamed new venture.
"We think of Dominion Capital as an incubator of strategies," Gurevich said.
How it works
Key to its realization of the idea will be the partners Dominion expects to bring together at launch.
Indeed, Gurevich acknowledges that what's been missing from the space so far is banks. "We want to bring in a number of strategic investors to help us build this out," Gurevich said.
So far, Dominion has already spent $1 million of its own funds building a minimum viable product, and it will formally start a Series A in a couple of weeks, aiming to raise $5 million that will be used develop the product, design the user experience and hire a team.
After that, it will make a modest amount of initial loans.
Once it has a working beta, the team expects to raise $100 million in a credit facility to finance loans, either through large hedge funds or a public bond offering.
"We think there could be a lot of interest for this type of product in the current yield-starved debt markets," Gurevich said.
Still, while nothing is set in stone yet, Gurevich said it's likely that they should be able to lend at roughly 50 percent of the value of the asset under loan. There will be terms in place - similar to margin calls - in case the value of the collateral asset drops dramatically.
"This will hopefully help legitimize the entire field."
Calculator image via Shutterstock