TLDR;
In this episode, Stephan Livera interviews Max K., CEO and founder of Debify, about the latest developments in Bitcoin lending and the evolution of Debify's platform. They discuss the Baltic Honeybadger conference, the emergence of Layer 2 solutions like ARC, and the growing interest in Bitcoin-backed lending among both retail and institutional investors. Max shares insights into Debify's model, which aims to bridge institutional liquidity providers with Bitcoiners globally, offering a transparent marketplace for Bitcoin-backed loans. The conversation also covers the challenges and opportunities in the Bitcoin lending market, including the importance of self-custody, the impact of regulatory frameworks, and the potential for future growth.
- Baltic Honeybadger conference highlights and the emergence of Layer 2 solutions like ARC.
- Debify's role in bridging institutional liquidity with Bitcoin lending.
- The importance of self-custody and multi-signature approaches in Bitcoin lending.
- Market trends, interest rates, and future predictions for the Bitcoin lending market.
- Use cases for borrowing and lending Bitcoin, including capital gains tax avoidance and operational expenses.
Baltic Honeybadger 2024 Highlights and ARC [0:40]
Max reflects on the Baltic Honeybadger conference, noting a continued interest in institutional adoption and Bitcoin treasury companies, despite efforts to shift the focus. A significant revelation for him was ARC, a new Lightning payment implementation that facilitated seamless transactions at the conference. He praises the ARC team, particularly Cooks, for their work in creating a tool that promises to improve the compatibility of Lightning with various financial applications. Stephan explains ARC's functionality, highlighting its use of bolts.exchange for swaps and its potential to simplify Bitcoin payments for merchants. Max sees ARC as a promising tool for building different financial tools on top of Lightning, addressing its previous limitations in areas like trading and lending.
Debify Overview and Lending Model [8:30]
Max provides an overview of Debify, explaining that it operates as a peer-to-peer marketplace connecting institutional liquidity providers with Bitcoin borrowers. Debify aims to bridge institutional lenders with Bitcoiners across the globe. The platform facilitates transparent Bitcoin-backed loans through multisig contracts on the public Bitcoin blockchain, ensuring that Debify does not custody any funds. The default multisig model involves four keys: one for Debify, one for the lender, one for the borrower, and one for an independent authorised key holder. Borrowers deposit Bitcoin as collateral, and lenders provide stablecoins or fiat. Debify offers institutional-grade infrastructure for loan portfolio management, KYC/KYB compliance, and secure Bitcoin market operations.
Loan Terms, Interest Rates and New Features [11:42]
The minimum loan size on Debify is £25,000, but smaller loans are also available. Max announces the upcoming launch of public beta for microloans in the range of £500 to £1,000 in partnership with a Bitcoin company, distributed via prepaid cards to mobile phones. Loan durations are currently up to 12 months, with plans to extend to 24 months in September, depending on lender preferences. The average interest rate on the market is around 12%, but Debify is onboarding lenders from traditional finance who offer lower rates. The best rate seen on Debify was 9% in Swiss Francs. Max mentions Zone 21 as a resource for tracking interest rates across different lending platforms.
Bitcoin as Collateral and Market Dynamics [19:50]
Max and Stephan discuss the unique aspects of Bitcoin-backed lending, noting that many lenders are Bitcoiners who weigh the opportunity cost of lending fiat versus buying Bitcoin. Stephan points out that fiat credit is often government-subsidised, making it challenging for lenders to offer low interest rates. Max explains that Bitcoin-backed lending can be seen as a Bitcoin bond, offering a coupon (interest) and being overcollateralised by Bitcoin. He highlights Bitcoin's 24/7 tradability as a key advantage for lenders. Stephan and Max agree that treasury companies and ETFs are helping to bring more traditional capital into the Bitcoin space, despite some Bitcoiners' concerns.
Lender Hurdles and Self-Custody [28:30]
Max addresses the hurdles faced when presenting Debify to potential lenders, noting that the main challenge is the concept of self-custody or collaborative custody. Many new entrants prefer custodial solutions, making the multisig approach a novel concept. Debify is working to simplify the process of holding a key to the collateral, with upcoming integrations to support various institutional custody solutions. Max emphasises that Debify will not compromise on the multisig approach, as it is valued by Bitcoin borrowers who have seen the risks of custodial platforms. He anticipates a "small revolution" in traditional finance as more institutions onboard with Debify and embrace self-custody.
Custodial vs Non-Custodial Lending and Future Trends [33:38]
Stephan and Max discuss the competition between custodial and non-custodial lending models. Max believes that custodial trading will remain dominant due to the need for fast execution, but non-custodial lending will gain traction as borrowers prioritise the safety of their collateral. He criticises proof-of-reserve as insufficient, as it does not guarantee the security of key management. Max predicts that as the price of Bitcoin grows, more people will seek non-custodial services to avoid selling and to mitigate risk. He envisions a future where trading, custody, and lending are integrated into one app through multisig.
Borrower Use Cases and Market Growth [42:51]
Max outlines the primary use cases for borrowers, including buying more Bitcoin, covering life expenses, and avoiding capital gains taxes. For corporates, the main reasons are covering operational costs and funding business expansion. Treasury companies also use Bitcoin-backed loans to increase their Bitcoin holdings without selling. Max predicts significant growth in the Bitcoin lending market, driven by its unique advantages such as super collateral, high liquidity, and transparency. He expects interest rates to decrease and non-custodial lending to outperform expectations.
LTV, Liquidation and Risk Management [47:24]
Max explains Debify's loan-to-value (LTV) and liquidation rates. The default LTV for fiat loans is 50%, while for stablecoins it ranges from 30% to 70%. A new feature will allow lenders to set their own LTV and margin call levels. Debify uses a robust price oracle with multiple exchanges to determine liquidation prices. Max highlights the upcoming "delayed liquidation" feature, which gives borrowers 24-48 hours to negotiate with the lender and avoid liquidation. He advises borrowers to never borrow against their entire Bitcoin stack and to maintain a buffer for rebalancing LTV.
Rollovers, Counter Offers and Market Predictions [53:26]
Max details how rollovers work on Debify, explaining that borrowers can request rollovers through the contract chat. New features will automate the rollover request process and help borrowers find alternative lenders if their current lender declines. Debify is also building a "counter offer" feature, allowing borrowers to propose alternative terms to lenders. Max predicts that the Bitcoin lending market will become very large, with rates decreasing and non-custodial lending growing significantly. He anticipates that custodial lenders will start offering non-custodial features to attract more customers.