The institutions that are crypto lenders act as intermediaries between consumers and the wild, unregulated, blockchain-based and often unregulated world of cryptocurrencies. They are therefore in an unusual position when it comes responsibility to their customers and assets. Lenders must balance between serving the public and adding sustainable, valuable, and safe cryptocurrencies to their support list.
Approval vs. Demand: The question about endorsement
It is not surprising that asset integration by lenders in an industry still developing is seen as endorsement. When companies add assets to their portfolio, it is often overlooked that crypto lending is a business. Any asset integration is ultimately a response-to-demand -- a market opportunity that generates benefits for clients and businesses alike. This could be because lenders are influential entities in a sector that historically hasn't had the institutional stamp and is looking for it through pioneering businesses.
In June 2021, Coinbase CEO Brian Armstrong sent a series tweets about the exchange's rapid integrations of multiple assets and its plans to continue this trend. Armstrong stated that being listed on Coinbase should not be taken as endorsement of the asset. This refers to the distinction between working with and endorsing an asset. Although their operations may differ from an exchange's, the same principle applies for crypto lenders. It isn't an endorsement; it's business. There are many ways to build client-centric, socially responsible businesses.
What if not endorsement?
Although listing an asset on a lending platform is not an endorsement, it does indicate that the asset is legitimate, stable and secure. Crypto lenders' operations with a particular coin means that they are technically and regulatorily compliant in owning, investing in and using financial services to support it. Working with unreliable cryptocurrency can have serious consequences for lenders, including their customers' trust and their future business. Therefore, they set high standards for asset technical reliability, market liquidity, price stability, legality, and legality. These companies' due diligence cannot be used as an approval stamp for investors. However, they can serve as a crypto wind indication, which provides a general indicator of the asset's safety and stability without endorsing it.
This has made crypto lenders the beacon of regulatory action. It is important to note that this complex interdependence can be both positive and negative. Crypto lenders can suspend services immediately if there are any new regulatory issues. The exact same scenario occurred on December 23, 2020 when major crypto exchanges and lenders stopped their XRP services due to the U.S. Securities and Exchange Commission suit of RippleLabs. It is important to note that these institutions have shown a tendency toward full compliance and competent legal counsel when faced with legal issues with XRP. They are also ready for immediate action according to the circumstances. Responsible crypto companies are the industry’s first reactors, and they can be helpful to monitor when you navigate the space.
Listings and the "Insert company Name" effect
While coin integrations on lending platforms don't necessarily mean endorsement, they do have a strong collateral impact on cryptocurrency. Both the largest crypto exchanges have their own "Coinbase effect" and "Binance effect" which cause newly-listed coins' value to increase significantly. This is due to the fact that they are suddenly available to a larger audience of investors, but it also gives buyers a sense credibility.
Similar phenomena were observed when PayPal announced in 2020 its plans to operate using Bitcoin ( TTC). News quickly spread and had an overall positive effect on market. The "Tesla" or "Elon" effect was the most prominent this year. It began with Tesla accepting Bitcoin payment in March 2021. After that retracted the opportunity. Needless to say, both of these actions had a significant impact on the cryptocurrency industry. Elon Musk himself, perhaps, caused a market crash that lasted almost two months. was his single tweet.
These examples of noncrypto native companies having an influence on crypto prices is not exhaustive. They show the power big brands have over the volatile crypto market. These examples show that all companies in the blockchain space must take responsibility, particularly for crypto lenders, who will be the new banks of the financial system. This volatile market is home to many new and smaller investors. The industry cannot be regulated without self-regulation. It must recognize and moderate the gravity of listings, statements, and tweets.
The technical aspect of listing assets
There are generally two main ways to add assets to cryptocurrency lending platforms. One is full integration with blockchain, while the other is more internal-facing. The first allows users to deposit and withdraw funds from their wallets. This gives them greater flexibility. These integrations are slower, more complex and require a lot of tech talent. They also depend on third-party custodians who can provide complete security for assets.
An alternative to full integration is a similar approach to Revolut’s crypto offering. Users can purchase digital assets and cryptocurrencies only on the lender’s platform. They cannot withdraw them to external wallets and don't have access their private keys. The provider manages the assets under their client's name. This allows for user-friendly exposure to cryptocurrency investments and can be implemented on the lender's platform faster than standard integration. Revolut was criticized by the crypto community for not launching limited Bitcoin withdrawals in mai 2021. However, this model has intrinsic value in a space like blockchain finance. It's why lenders such as ours have adopted this model for assets like Polkadot and Cardano (ADA), Dogecoin and Solana (SOL).
In keeping with its quest for security, the famous motto of "not your keys are not your coins" was a hurdle to internal integrations. They are still flourishing on Nexo, with $11, $28, and $12 million in turnovers, respectively, from DOT, ADA, and DOGE purchases within the first month of launching these integrated systems. Clients use their assets extensively, despite not being able self-custody. The rapidly expanding space is constantly changing and people want to be exposed to new assets. This is why crypto lenders can't keep pace with the demand for new assets. They are limited to slower, more resource-intensive blockchain integrations that allow clients greater control over assets and limit exposure to many innovative and well-performing coins.
"Not your keys and not your coins" is a key benefit of crypto. It allows you to have custody and security over your funds, rather than trusting an institution. As crypto grows rapidly, the phrase may be a bit too simplistic. This strategy should be used by lenders and other companies that use internal asset integrations to help them grow their businesses and provide their clients with timely access to lucrative investment opportunities.
The future: Social obligations > Legal obligations
Crypto lenders need to be careful about the messages they send, weigh the actions and words behind their brands and integrate different ways to improve their users' experience in this dynamic industry. Many of these actions are dependent on the social responsibility and blockchain-based corporate social responsibilty (CSR) of crypto companies.
It could include: 1) shaping crypto regulation as industry leaders have done with the pending U.S. Infrastructure Bill; 2) presenting audits on reserves, as Nexo has done via its real-time Attest via Armanino; 3) educating customers through articles, ask me-anything sessions and support groups about the assets they work and the services they provide and how to use them safely.
Most industries are unfamiliar with the challenges of developing and unclear regulation. The unique value of crypto lenders and blockchain companies taking on more social responsibility and being self-regulatory from the beginning is in the potential for a better ecosystem that fosters stronger relationships between clients, regulators, and businesses. These principles of self-regulation, socially-minded services and a growing number of institutional blockchain experts will help crypto companies evolve from startups to established institutions.