Telegram chats and excel spreadsheets
The crypto lending industry today functions like the banking sector in the 1960ties. Lending and borrowing were happening in a rather messy, scattered way. Lender and borrowers found themselves calling each other up and agreeing on the terms via telephone or fax machines. Back then, there was no institutionalized money market for banks and other entities to go to.
The same is the case for crypto with voice brokering being today’s norm. Crypto businesses that either want to lend or borrow don’t have a consolidated marketplace in the form of an electronic trading system to either get or grand short-term loans. They find themselves constrained to use either Bloomberg terminal or Telegram to connect to and settle a deal with a potential counterparty. Trades are carried out through voice calls, using instant messengers or emails. Besides not having organized communication channels, there is also no unified reporting. Right now, each company must keep track of its deals in a separate excel spreadsheet.
Consequently, short-term crypto debt markets are riddled with unpredictable risks, market opaqueness, and inefficiencies that lead to low liquidity flows. Serious crypto entities that have no other choice than jump in at the deep end feel anxiety every time they engage in crypto borrowing or lending services. And more traditional institutional lenders and borrowers don’t even feel like tipping their toes in.
CLST: The first professional money market for crypto
These circumstances call for improvement. At CLST, we are establishing a network of lenders and borrowers to become the institutional gateway for uncollateralized lending. In order words, CLST is building the necessary new money markets for this newly emerging money.
Through an all-in-one platform, CLST strives to get rid of handling individual excel spreadsheets. By becoming the center hub of crypto lending and borrowing institutions have a consolidated venue that directly connects lenders and borrowers – be it crypto banks, investment firms, market makers, hedge funds, trading firms, asset managers, fiduciary lending firms, crypto mining companies or treasuries.
One of CLST’s key achievements is standardization and professionalization. An easy-to-handle interface lets counterparties seamlessly find one another. Terms and conditions regarding either lending or borrowing can be pre-defined and set for all platform users to see. Thanks to automated requests for quotes (RFQs), counterparties can directly place quotes with each other and then accept if an agreement is reached. CLST’s platform also allows users to connect their wallets for peer-to-peer settlement and be a custodial and non-custodial wallet. This means that counterparties cannot only lend and borrow their crypto assets are customized terms but also have them settled in an automated fashion.
CLST’s platform keeps track of all the crypto lending and borrowing deals that its users have ever performed. This way, credit histories exist and can be consulted by individual counterparties to better assess each other. And the in-built chat function helps counterparties to seamlessly communicate. Both features build trust and foster long-term engagement. Because of more effective communication and reporting that occurs in one place only, excel spreadsheets are no longer needed. This seriously reduces opaqueness.
The automation of bilateral price negotiation and settlement on a consolidated platform also helps diminish credit and counterparty risks. The safekeeping and the provision of insurance through established triparty collateral management systems between borrowers and lenders is paramount to traditional money markets. Such triparty solutions are not present with crypto assets yet. CLST however is providing a one-stop-shop platform that allows borrowers and lenders to conduct their credit risk assessment and choose their counterparties carefully.
This marks a crucial difference to decentralized finance. DeFi protocols offer a wide array of lending and borrowing possibilities. Contemporarily though, they are more of a retail phenomenon. They neither provide the trust nor the regulatory requirements that would make them deployable in a wider institutional context. For one thing, smart contract lending and borrowing protocols have technical risks that are difficult to calculate. For another thing, they lack transparency into counterparties. Since DeFi protocols gather funds from various unknown entities, an institution cannot reliably know, who it is interacting with. Such realities make borrowing or lending through decentralized finance projects commonly inaccessible for most institutions at present.
Therefore, CLST is working towards the institutionalization of crypto money markets. With promissory notes provided by FQX, counterparty risk in uncollateralized lending is reduced through a legal framework represented on-chain. Because risks are mitigated, and trust is established, already a reasonable amount of institutional entities – crypto-native as well as traditional – are using CLST’s all-in-one platform. Through the ever-growing number of users on CLST’s platform, better pricing for crypto lending and borrowing ensues as more liquidity leads to better price quotes. The dawn of professional crypto money markets is upon us.