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The responsibility behind the crypto lender's asset register

8 min reading

Crypto creditors are institutions that find themselves between the consumer and the cryptocurrency space which is uncontrolled, blockchain-based, and often unregulated.

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Crypto creditors are institutions that find themselves between the consumer and the cryptocurrency space which is uncontrolled, blockchain-based, and often unregulated. As such, they hold a special position in terms of their obligations to their customers and the assets they provide services to. Therefore, in choosing which currency to support, lenders lead a smooth dance of responsibility by catering to popular demand and adding cryptocurrencies that are sustainable, useful and secure.

Not surprisingly, in a new industry full of new investors, lender asset integrations are often accepted for approval. What is usually overlooked when companies add new assets to their service offerings is that cryptocurrency lending is actually a business and the integration of any asset is ultimately a response to demand – a good market opportunity that benefits both the company and the customer. Perhaps it's because influential lenders in a space that have historically lacked the seal of institutional approval and seek it through the innovative businesses that make up the industry.

In June 2021, Coinbase CEO Brian Armstrong posted a series of tweets about the rapid integration of multiple assets on the exchange and his intention to follow suit. Armstrong wrote that "it should not be listed as an endorsement of this asset on Coinbase," pointing out the global difference between working with an asset and its approval. Although they act differently than stock exchanges, the same principle applies to crypto lenders: It's not a deal, it's just a business. And there are many ways to build a customer-centric, socially responsible company.

Registering assets on a credit platform, even if not a permit, is an indication of the level of legitimacy, stability and security. The operation of a crypto lender with a particular coin means that its holding, investment with/in it and the use of financial services for it are regulatory and technically stable. Lenders can lose a lot of their jobs with unreliable cryptocurrencies, including funds, as well as the trust of their customers and the future of their business. Therefore, they maintain a high standard of asset technical strength, broad market liquidity, price stability and legality. While the due diligence of these companies cannot serve as the aforementioned seal of approval for investors, they can be a kind of crypto wind indicator that provides a general indication of the stability and security of an asset without endorsing it.

As such, crypto lenders have become beacons of regulatory action, and it should be noted that this complex interdependence goes both ways – cryptocurrency services will soon be discontinued, even if there are potential new regulatory issues with the coin or token. This exact scenario came to light on December 23, 2020 when a number of major exchanges and crypto lenders suspended their XRP services in the face of a US Securities and Exchange Commission lawsuit against Ripple Labs. A valuable solution is that the immediate reaction of these agencies, as well as to possible legal issues with XRP, is to demonstrate full compliance tendencies, competent legal advice, and a willingness to act promptly in accordance with the circumstances. Fundamentally, responsible crypto companies are the industry's first reactors and can be useful for overseeing space navigation.

Although the integration of the coin into the credit platform does not imply approval, the company's actions still have a strong side effect on cryptocurrencies. The world's largest crypto exchange has the so-called "Coinbase Securities" and "Binance Securities", which allow newly listed coins to be significantly appreciated. That's partly because they've suddenly become available to a wider audience of investors, but what's more, their uptake by these stock giants gives buyers confidence.

A similar phenomenon was observed in 2020 when PayPal announced its plans to partner with Bitcoin (BTC): the news spread quickly and had an overall encouraging effect on the market. A valid example this year is Tesla or the Elon Effect, which started with Tesla accepting Bitcoin as payment for its vehicles in March 2021 and then withdrew this option – both actions naturally caused a stir in the crypto industry. A few months later, Elon Musk was able to trigger a market downturn that lasted nearly two months with even a single tweet.

The examples of the influence of non-crypto crypto companies on the price of cryptocurrencies are not even complete and show the influence of big brands in the volatile crypto market. They signal the need for responsibility of all companies operating in the blockchain space, especially crypto lenders who become banks of the new financial system. This is an unstable market with much smaller retail investors and new players. In the absence of regulation, the industry will have to self-regulate, recognizing and limiting the weight of its ads, investments, statements and even tweets.

In general, there are two main approaches to adding new assets to a crypto lending platform. The first is full blockchain integration and the second is a more internal implementation. The former allows users to deposit and withdraw assets in their wallets, which gives them more flexibility overall. The downsides are that this integration takes a little longer, requires rare technical talent, and relies on finding a suitable and reliable outside trustee to keep assets safe at all times.

 An alternative to full integration is an approach similar to Revolut's crypto offering, where users can only buy cryptocurrencies and digital assets on the lender's platform, cannot download them to external wallets, and therefore cannot access their private keys. Behind the scenes, the provider processes assets on behalf of its clients, creating user-friendly exposure to crypto investments that can be implemented much faster than standard integrations on crypto lending platforms. Although Revolut received criticism from the crypto community that eventually led them to initiate limited bitcoin withdrawals in May 2021, this method is inherent in dynamic spaces such as blockchain funding, and that is why lenders like us have convenient models for asset recognition such as Polkadot (DOT), Cardano (ADA), Dogecoin (DOGE) and the latest addition Solana (SOL).

True to their struggle for maximum security, the well-known mantra of the crypto community “not your keys are not your coins” is a natural obstacle to internal integration. Nonetheless, they thrived on Nexo with revenues of $11, 28, and 12 million, respectively, from DOT, ADA, and DOGE purchases in the first month of this integration. Although they cannot manage their own wealth, clients use it extensively. People want and need new assets that appear regularly in rapidly growing areas. Crypto lenders cannot meet this demand simply by using slower and highly resource-intensive blockchain integrations that give customers more control over assets, thereby limiting exposure to many new and established showcase coins.

“Not your keys, not your coins” embodies one of the main advantages of crypto – the ability to take and secure your funds into your own hands instead of having to trust institutions. But maybe the rates are becoming a bit reductive as crypto is increasing rapidly. For lenders and other companies using internal asset integration, this strategy should be a stepping stone to full integration to keep up with industry developments, grow their business, and provide their clients with profitable investment opportunities in a timely manner.

Ultimately, crypto lenders need to soften the message behind their asset listings, weigh in detail the words and actions behind their brands, and use various integration methods to enhance their user experience in a dynamic industry. In an environment where common rules and standards are lacking due to their adoption, many of these actions rely primarily on crypto-business social responsibility and blockchain-based corporate social responsibility (CSR).

These may include: 1) proactive formulation of crypto regulations, as we have seen industry leaders in pending US infrastructure legislation; 2) Submit a backup audit, as Nexo has done through real-time certification by Armanino; or 3) educating customers - through articles, question and answer sessions, support groups, and even the interconnected world - about the resources they use, the services they offer, and how they can be used safely and profitably.

Emerging and unclear regulation is something most industries have yet to address. Therefore, the new value behind crypto lenders and blockchain companies, taking on greater social responsibility and self-regulatory roles from the start, has the potential to create a more sophisticated ecosystem with stronger relationships between customers, businesses and regulators. . As crypto companies evolve from start-ups to pivotal institutions on and off blockchain, these principles of self-regulation and social thinking pave the way for an ethically and morally oriented world of finance that is not based solely on profits and legal obligations.

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