One of the top trends of 2020 in the blockchain space was the explosive growth of traditional financial products being reimagined for cryptocurrencies.
Although there are numerous projects taking different approaches to collateralized lending and borrowing with digital assets, the risk is high and many have gone bankrupt or failed to gain much adoption. This leaves the door open to established and well-connected companies in the industry to enter and quickly take significant market share.
In December, the GDA Group, a Canadian financial service provider for digital assets and one of the oldest and largest blockchain firms in North America, expanded their product suite with the launch of GDA Lending. This new branch of the GDA group of companies is focused on providing capital to institutional clients, with loan amounts between $250,000-$10 million. The firm says there will be “a non-recourse lending service backed by a tier-1 lender for USD, BTC, ETH, XRP, and EOS, with a loan-to-value ratio of up to 65%.” This puts GDA Lending immediately in the category of other institutional financial service providers such as Galaxy Digital, rather than focusing on the high-risk retail markets.
While the ability to build fast and not be hindered by the usual regulatory procedure is one of the cryptocurrency industry’s strengths, it is not without downsides. In November, the crypto trading desk Cred filed for Chapter 11 bankruptcy. The company reported assets of between $50-100 million but liabilities between $100-500 million.
The lack of fiduciary responsibility of many startups in the space is a vivid reminder that the industry cannot see global mainstream adoption without the involvement of established financial institutions with strong balance sheets and successful track records. Firms like GDA Lending bring much-needed professionalism and 50 years of capital markets experience to this young sector, not to mention an asset balance sheet large enough to provide long-term stability in volatile market conditions.
“Institutional investors are becoming increasingly more knowledgeable about digital assets and the unique investment properties they add to a modern portfolio. We are looking forward to adding GDA Lending into the GDA Group’s existing portfolio of financial products to deliver safe and seamless digital asset exposure,” said James Godfrey, an advisor to the GDA Group.
In the past few years, the GDA Group became one of the most vertically integrated businesses in the digital asset space. The new GDA Lending service will sit alongside the group’s capital markets division, GDA Capital, and it’s global liquidity network, Secure Digital Markets.
One of the most interesting aspects of the announcement is its focus on serving enterprise-scale Bitcoin mining operations. While the mining industry has been historically dominated by China, there has been an enormous growth of mining businesses in North America, including a handful of public mining companies that are expected to expand beyond 2 EH/s (exahash/second) of hashrate each in 2021. With the current global network hashrate between 130 – 140 EH/s, this will mean that multiple individual mining operations in the region will have over 1% market share, contributing to improved decentralization in mining.
However, setting up mining operations at this scale is incredibly capital-intensive. With the latest generation of ASIC mining machines costing around $4,000 apiece and mining farms purchasing thousands of ASICs at a time, borrowing is a necessity in order to scale up or even to simply retain current market share. And that’s not to mention all the other costs associated with operating large data centers, such as high-capacity power supplies and cooling infrastructure.
By allowing miners to use their ASIC hardware and other mining infrastructure as collateralized assets backing their loans, GDA Lending enables miners to scale rapidly without the need for prior capital deployment and accrued asset yields.
Needless to say, the expansion of institutional mining operations in North America is a very promising opportunity for players like GDA Lending to capitalize on this lucrative sector of the digital asset industry.
Disclaimer: Please consult your financial advisor before investing in any cryptocurrencies as they are volatile and pose risks for the average investor. This post is informational in nature and does not constitute financial advice. The writer does not have any relationship with any of the companies mentioned.
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