KOREA BLOCKCHAIN WEEK, SEOUL – At the height of the bull market in late 2021, Maple Finance, a crypto lending protocol, thought it had the hottest product on the market: a way for token-skeptical institutions to capture yield from Alameda Research’s trading activities.
Alameda, at the time, was the center of attention in the burgeoning decentralized finance (DeFi) industry, and fund managers in traditional finance were jealous of the spectacular yields the crypto fund was able to generate. Maple Finance’s syndicated loan product launched as the market hit its top in November 2021 while crypto became a $3 trillion asset class.
“The focus was on maximizing returns rather than capping downside risks," Maple co-founder and CEO Sid Powell said in an interview from the sidelines of Korea Blockchain Week, where he highlighted the need for a shift in perspective. “Risk consciousness was a secondary thought. Everyone was chasing the high returns, not thinking about the potential pitfalls.”
The fall of Alameda and the subsequent crypto crash of 2022 served as a wake-up call for Maple Finance. With borrowers defaulting and lenders fleeing, the company's Total Value Locked (TVL) was wiped out.
While Alameda was “off our balance sheet” by the time of its implosion, Powell and Maple weren’t so lucky with Orthogonal, which defaulted on $36 million in loans in the aftermath of FTX. The fallout with Orthogonal underscored the vulnerabilities in the DeFi space and the need for more stringent risk management practices.
Powell emphasized the lessons learned from these defaults, saying, "Diversity was the biggest one. We wanted more delegates, more borrowers, and very strict reporting requirements."
He further highlighted the importance of branching out into uncorrelated sectors, ensuring that Maple Finance would not be solely reliant on the volatile crypto market.
Part of this includes Real World Assets (RWAs). In January, Maple launched a $100 million liquidity pool for trade receivables, marking a shift from uncollateralized crypto lending to traditional financial investments.
"Lending to a portfolio of small businesses, such as successful software companies, is not impacted by Bitcoin's price fluctuations, introducing uncorrelated sources of credit into the DeFi space, which is beneficial,” he said.
Maple has also recently introduced tokenized treasury bills as an investment option, joining a slew of crypto startups chasing this TradFi yield that sometimes now surpasses DeFi yield.
Still After that TradFi-DeFi Connection
As institutionalized as digital assets have become, there are many investors and fund managers who are simply put off by the idea simply because they don’t understand the technical intricacies of it.
Maple’s mission has always been to bridge this gap – its Alameda loan product was the first example – and this hasn’t changed despite the shakeups. Now, though, Maple is banked thanks to crypto-friendly regulations in the Asia-Pacific region (APAC).
“We want to abstract away as much of the complexity of crypto as possible," Powell said. “My vision for the future is we could pitch a family office and say we have a credit and lending product that has lower fees than your average Ares or Apollo credit fund.”
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