Late in 2021, during the zenith of a bullish market, Maple Finance, a digital lending protocol, claimed to have an enticing product. It promised token-skeptical institutions a share of the returns from the trading exploits of Alameda Research. The latter was the cynosure of the decentralized finance (DeFi) industry, and traditional fund managers eyed the spectacular yields it posted. Maple Finance rolled out its syndicated loan product right when crypto reached a market valuation of $3 trillion.
According to Maple’s co-founder and CEO, Sid Powell, most were preoccupied with maximizing profits rather than capping potential losses. This mindset, he suggested, made risk consciousness a secondary consideration. However, the 2022 crypto downfall, characterized by lenders quitting and defaulting borrowers, served as a rude awakening for Maple Finance. This meltdown eliminated the company’s Total Value Locked (TVL).
Although Alameda was,”off our balance sheet,” by its collapse, Orthogonal’s default on a $36 million loan emanating from FTX’s aftermath took a significant toll on Maple Finance. This event underscored both the inherent vulnerability of the DeFi space and the urgency of stringent risk management practices.
Powell highlighted the need for diversity to stymie such defaults. He emphasized more delegates, more borrowers, and stringent reporting requisites. Besides, he mentioned the pertinence of diversifying into uncorrelated sectors, ensuring that the company wasn’t solely tied to the volatile crypto market.
Maple launched a $100 million liquidity pool for trade receivables in January, which marked a shift from uncollateralized crypto lending to traditional financial investments. Powell noted that, “Lending to a portfolio of small businesses, such as successful software firms, devoid of Bitcoin’s price volatility effects, introduces uncorrelated credit sources into the DeFi terrain.” The company also introduced tokenized treasury bills as investment options.
Although digital assets have become increasingly institutionalized, the technical complexities of crypto still dissuade certain investors and fund managers. Despite turbulent upheavals, Maple’s unwavering goal has been to bridge this knowledge gap, and the Asia-Pacific region’s crypto-friendly regulations have afforded it some financial relief.
Today, the company is striving to simplify crypto’s complexity even further. Powell envisions a future where they could pitch a family office, offering a credit and lending product with lower fees than the average Ares or Apollo credit fund.
Source: Coindesk
