The institutions that are crypto lenders between consumers and the wild, unregulated, blockchain-based and often unregulated world of cryptocurrencies are called “crypto lenders”. They are therefore in an unusual position regarding their responsibility to 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.
Brian Armstrong, Coinbase CEO, tweeted a series about the exchange’s rapid integrations of multiple assets. He also stated that it intends to continue this trend. Armstrong stated that being listed on Coinbase should not be taken as endorsement of an 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 endorsement for investors. However, they can provide a general indicator of an asset’s safety and stability without endorsing it.
The regulators have been watching crypto lenders and it is important to note that this interdependence can be both positive and negative. Crypto lenders can suspend services immediately if there are new regulatory issues. The exact same scenario was played out when major crypto lenders and exchanges stopped offering XRP services due to the U.S. Securities and Exchange Commission Ripple Labs lawsuit. It is important to note that these institutions have shown a tendency toward full compliance, competent counsel, and readyness 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.
Related: SEC and Ripple: An unpredicted but undesirable development
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 the “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 plans to accept Bitcoin (BTC). News quickly spread and had a positive effect on the market. The “Tesla” or “Elon” effect was the most prominent example this year. It began when Tesla accepted Bitcoin to pay for its vehicles in March 2021. However, it then retracted the offer — both actions caused ripples in the crypto market. Elon Musk himself was able to trigger a market decline that lasted almost two months by tweeting a single tweet a few months later.
Related: Experts answer: What does Elon Musk do to the crypto space?
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 banks of the future 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 May 2020. However, this model has intrinsic value in a space like blockchain finance. That’s why lenders such as ours have adopted this adoption-friendly model to support assets such as Polkadot(DOT), Cardano(ADA), Dogecoin [DOGE], and the latest addition of Solana (“SOL”)
In keeping with its quest for security, the famous motto of the crypto community that “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 of crypto companies and blockchain-based corporate social responsibilty (CSR) in an environment that lacks regulations and common standards.
It could include: 1) shaping crypto regulation as industry leaders have done with the U.S. Infrastructure Bill, 2) presenting audits on reserves, as Nexo has done via its real-time Attest via Armanino, or 3) educating customers through articles, ask me-anything sessions and support groups about the assets they work and the services they provide, as well as how to use them safely and effectively.
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.
This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Magdalena Hristova works as a Nexo public relations manager. Her penchant for writing, natural curiosity and ability to create ripples in established industries led her to work as a copywriter in crypto before moving into communications in crypto.