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Maple Finance CEO: Separating risk from lending saved DeFi from market crash

Maple Finance CEO: Separating risk from lending saved DeFi from market crash

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Maple Finance founder and CEO Sid Powell says transparency has been the savior of decentralized finance (DeFi) amid a prolonged crypto market slump.

Speaking to Cointelegraph on the sidelines of the Converge22 conference in San Francisco, Powell noted that throughout the crypto winter, DeFi has continued to operate as planned, while centralized finance (CeFi) has become “pretty passive.”

Powell suggested that during the market crash, CeFi lenders were not properly “battle tested” and were not “willing to liquidate customers” because they wanted to maintain customer relationships.

“As the price of Bitcoin went down, they didn’t want to send margin letters or emails to hundreds of customers because they wanted to maintain customer relationships,” Powell explained.

“So you give them a little bit longer, a little bit longer — suddenly a lot of these loans are underwater, especially the ones that started [were] underinsurance.”

He notes that where CeFi companies still lend, “they do it 1:1 with collateral.”

On the other hand, “DeFi is much more transparent,” he explained. In over-insured DeFi models, “people just got liquidated when BTC and ETH went down. It happened automatically.”

“In DeFi, you can’t get away with one borrower being half the loan pool because people see that and question risk management.”

“All the loans are visible, so you had to be a lot more careful about who you tagged and how you tagged them,” Powell said.

Powell also added that the CeFi business was diversified through trading and prime brokerage, which they felt was a strength, but all of their business lines impacted each other:

“But if a CeFi lender were to run a pool in Maple, it wouldn’t affect what happens in trading. […] It is limited and tied to lending activities only.”

Related: Decentralized finance faces several barriers to mainstream adoption

Maple is a decentralized financial lending platform that claims to own 50% of the institutional crypto lending market in terms of total loans, and has issued nearly $1.8 billion worth of loans since its inception in May 2021.

Maple’s loan portfolio “severely outperformed CeFi,” Powell said, “with only one default of $10 million out of $1.8 billion in loans and 900 [loans] excellent at the time.”

Powell described Maple Finance as “a place where people can organize loan pools”, but said the appetite for borrowing has decreased since June, which has pushed loan rates from 8-9% to 10-13%, and thus crypto-surveillance. whales and yield aggregators have started to distribute again to lending platforms like Maple.