Eqonex Launches Institutional Peer-to-Peer Crypto Lending Marketplace

Eqonex Group (previously Diginex), a blockchain services company, has created an automated peer-to-peer crypto lending marketplace.

According to Charlie Beach, Eqonex's Chief Risk Officer and head of lending, Eqonex is targeting institutions who want greater transparency than the over-the-counter (OTC) market offers but don't trust decentralized finance (DeFi) protocols, which are prone to flash loans and hacks.

According to Beach, the institutional lending industry is controlled by OTC desks that lack transparency regarding loan interest rates.

“You have a lot of companies working via a small number of dominating actors, almost like an oligopoly,” Beach said.

Beach noted that some companies use loans to support trading tactics, while others use them to acquire operating cash, such as bitcoin miners who wish to retain their coins when the price of bitcoin is low.

“You'll see some of the same use cases in crypto markets if you go back to the reasons why individuals lend and borrow in the repo [repurchase agreement] or securities loan market,” Beach added.

Crypto lending is a trend that has the potential to enhance crypto asset liquidity and price discovery. However, it has also created market-wide systemic concerns. Beach said that Eqonex would not rehypothecate collateral and will levy a 1.3 percent yearly fee. (Rehypothecation is a process in which banks and brokers utilize assets placed as collateral by their customers for their own purposes rather than storing them in cold storage.)

Beach said that the majority of the loans Eqonex intends to issue would likely be in the $1 million to $5 million or $5 million to $20 million range.

“The pipeline runs from the low millions to $300 million over three years,” Beach said. “We're seeing everything from a month to six months out, but possibly even two to three years out in the longer term.”

In addition, Eqonex intends to overcollateralize all of the platform's loans.

“A USDC loan backed by BTC, for example, would have an initial margin of 140 percent and a margin call of 120 percent,” Beach said. “A sizable part of the market is searching for that kind of secure solution. Because a growing percentage of loans in the market have less than 100 percent collateral, if not none at all.”

Eqonex's automated system also handles collateral, placing it in cold storage as soon as the borrower receives the loan principle. Beach said that if the value of collateral falls below the margin floor, the platform would automatically issue a margin call. Borrowers have a 12-hour call window for margin calls.

Eqonex makes loans depending on the amount of collateral borrowers put up, and it uses its know-your-customer onboarding process to filter out non-creditworthy organizations.

According to Unchained Capital CEO Joseph Kelly, who has no connections to Eqonex, having loans overcollateralized and not rehypothecating collateral would enhance institutions' confidence in Eqonex's lending platform.

“Peer-to-peer markets are also subject to consumer lending rules and other consumer protection regulations, making it simpler to service institutions with a peer-to-peer marketplace,” Kelly said.

The platform does not require clients to pre-fund loans or maintain deposits. Settlement instructions are automatically issued to the lender to pay principle and to the borrower to submit collateral when a loan is matched. When both of these items arrive on the platform, the principal is transferred to the borrower and the collateral is transmitted to Digivault, Eqonex's custodian, which is registered with the Financial Conduct Authority in the United Kingdom (FCA)

“Our own lending operations staff is there to make sure that customers have gotten alerts to reduce the likelihood of their being liquidated,” Beach said of the automated process. Eqonex sells into the market either on exchanges like Eqonex or via OTC liquidity providers in the event of liquidation.

Beach said that Eqonex hopes to build a loan book in the "hundreds of millions" by next year. In the future, he added, the peer-to-peer lending platform would be integrated into a prime services offering.

“A growing number of companies are interested in getting into the crypto financing space,” Beach added. “Everything from conventional institutions that are forward-thinking and interested in going into crypto is on display. Corporate treasuries are also showing interest in borrowing and lending.”