A German startup is seeking to provide an investment avenue for family offices, private banks, and U/HNWIs to earn juicy yields, while benefiting from the exuberance over cryptocurrencies without necessarily assuming the risks directly.
Lendary automates margin lending by providing capital to margin traders in a fully controlled environment on one of the world’s largest cryptocurrency exchanges. “[It enables] investors to earn a passive and fixed income from cryptocurrencies without directional crypto-exposure,” the German startup said.
“A robust liquidation technology ensures that the capital is paid back to Lendary users with earned interest regardless of the margin traders gains or losses,” it added. “Simply put, Lendary allows investors to act like a bank, lending money to margin traders who pay interest in return, creating a constant stream of fixed income, all of which can be tracked via a personalised dashboard.”
The software platform has funded more than 550,000 margin trades with US$650 million in lending volume as of 1Q21, the company said. Since July 2019, usage of the Lendary platform has grown more than 200% on margin volume issued on Lendary.net. “Globally, the active margin volume used on the relevant exchanges has increased from US$300 million in 2019 to US$1.6 billion in 2021,” it added.
“Lendary’s service may find particular appeal in Asian markets where interest rates are traditionally low with some having been in negative territory for over a decade,” co-founder Benjamin Thomsen said in a press release. “Lendary aims to provide an alternative, opening up the future of fixed income.”
Ready to launch in Asia
Investors have been turning to riskier options as they seek yields. Such investments pay out higher to compensate investors for the risk.
Negative-yielding debt tracked by the Bloomberg Barclays Global Negative Yielding Debt Index has crossed the record US$18 trillion mark as governments around the world keep interest rates low, stoke economic recovery from the COVID-19 pandemic, and continue to print money.
Lendary, a Munich-based startup founded by former Boston Consulting Group consultants, offers automated lending software that could earn double digits per year. The number is based on actual, and real-time cryptotrading data.
“With a background in asset and wealth management, I am keenly aware of opportunities in working [with] FOs and PBs,” Agost Makszin told Asian Private Banker. “We are working on an institutional “focused” product,” the wealth advisory industry veteran and managing director of Lendary Asia added. “We hope to open the pathway to the future of fixed income to institutional investors sometime this year.”
Makszin said that after two years of “solid performance delivering double-digit returns” for users, Lendary was ready to launch in Asia. “Asia has always been in our plan.”
Asked about the safety of investors capital, Makszin explained to Asian Private Banker that there is an automated liquidation system in place. “[It is the] same as any other margin accounts, with margin calls followed by automated liquidation, which guarantees the capital is paid back with the interests.” All client funds are held with the crypto-exchange with which Lendary partners, he added.
In terms of the regulatory environment, Makszin told Asian Private Banker that Lendary’s automated margin lending service does not involve taking in money or selling any financial products.
“Therefore Lendary doesn’t fall into the category of any regulated activity requiring any SFC-issued licences in Hong Kong,” Makszin said. “Should the regulatory environment change, we will comply with relevant regulation as necessary.”
Private banks have reservations
Despite PBs’ misgivings about allowing clients to invest in cryptocurrencies, the run-up in their prices has compelled PBs and advisors, to offer some exposure to the nascent asset class.
Bitcoin’s fixed supply could cause the collapse of its value and spending power, making it unattractive to use as a currency, believes Paul Donovan, chief economist, Global Wealth Management at UBS. “The debate about bitcoin and other crypto tends to be very passionate,” Donovan noted. “Cryptosupporters say that economists are just dinosaurs, and economists say that cryptosupporters are just selling a bubble.”
“If we look objectively at the issue, I think an important question is whether bitcoin and other crypto could be currencies,” he said. “And, I don’t think that they can.”
But as prices of Ethereum hit an all-time high of US$2,800, surging more than 270% since the beginning of the year, other banks have tried to take a more cautious approach to enabling their U/HNWI clients to participate in the rally.
JPMorgan Chase & Co., America’s biggest bank by assets, plans to launch a cryptocurrency exchange-traded fund (ETF) for private clients, with a focus on companies involved in crypto, rather than a direct investment in digital currencies, according to cryptocurrency news outlet Coindesk, citing people familiar with the matter. In March, its investment banking unit issued the first cryptorelated structured note to U/HNW clients tied to the performance of Bitcoin proxy stocks such as MicroStrategy and Riot Blockchain.
A number of private banks in Hong Kong have welcomed clients keeping crypto-asset funds in their private banking accounts, Avaneesh Acquilla, CIO of Arrano Capital, has told Asian Private Banker. Until now, he explained, most HNW clients in Asia, including family offices, have been trading in cryptocurrencies directly instead of seeking exposure through investment products related to the asset class.