Anchorage Digital
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Anchorage Digital

The Path Forward for Crypto Lending

By Nathan McCauley and Jennifer Liu, Head of Financing, Anchorage Digital

Last week, Diogo wrote about recent market volatility as an opportunity to build and test the integrity of crypto markets. This week, the industry at large is reeling from the 2008 subprime-era-like shocks to crypto credit markets (in relative terms) across large notable lending desks and liquidity providers. While bailouts and account freezes are happening elsewhere, Anchorage Digital has experienced zero negative impacts, and we’re actively expanding our proven, capital preservation-focused lending program.

Anchorage has always taken a regulated, safe approach to our stack of services, and our approach to create risk-model based lending has been no exception. Despite volatility across digital assets, Anchorage financing is ready to originate loans from new and current clients, and help more institutional lenders generate yield on their assets as the model for thoughtful crypto lending.

Why has Anchorage financing been successful?

Over the past 18 months, we’ve run a large lending program, helping to originate billions of dollars in loans. These loans have been successful because of the strong risk modeling and controls we’ve built into our program from the beginning, achieving yield generation for lenders and access to liquidity and digital assets for borrowers as a compliant lender that works exclusively with institutions.

This kind of risk-mitigated lending is the foundation of a thriving, responsible credit market. We believe stable lending and borrowing is mission critical to the sustainable growth of the digital asset ecosystem. And the need for stable financing is not unique to crypto; for generations, traditional lending has allowed businesses and individuals to prosper, generating jobs, economic activity, and broad-based growth.

While recent market volatility has raised scrutiny around the structural integrity of a number of digital assets and their service providers, heightened vetting standards like Anchorage’s are increasingly critical to ensuring a safer financial future. We’d also like to thank our borrowers for being transparent and responsible members of the crypto community.

This year, we have had:

  • Zero losses to client or firm capital
  • No liquidity issues with respect to asset withdrawals
  • Appropriate risk-monitoring of counterparties and collateral

This year we have experienced:

Zero losses to client or firm capital: Anchorage lenders took no losses, nor did we use firm capital to subsidize losses on any bad loans.

No liquidity issues with respect to asset withdrawals: Anchorage has met all of our lender withdrawal requests ahead of schedule. In fact, over the past few weeks’ heavy volatility, all of our lender withdrawals were processed faster than our required SLAs. Our deep liquidity backstop allows for immediate action in the event of liquidation.

Appropriate risk monitoring of counterparties and collateral: We believe continuous monitoring of key metrics and multiple reference prices to protect against outages and single-source pricing anomalies are key to navigating any market, especially a highly volatile one like we have recently experienced. We require an in-depth knowledge of every borrower and appropriate collateral requirements and management.

Charting forward amidst the storm

Our lending story begins with a modest start: we weren’t first to the lending market and we weren’t offering the largest lines of credit, so many borrower counterparties turned to the larger, earlier platforms. We regularly heard our yields weren’t high enough, and we extended far less credit than more aggressive lenders.

To us, a measure twice, cut once approach — to keep our clients, our team, and the integrity of our reputation intact — meant that while we started later, we’d stand the test of market pressures.

Capital preservation has been, and continues to be fundamental to institutional lending and borrowing at Anchorage, because who cares about the highest yield if you lose your funds?

We’ve built our lending program thoughtfully with the idea that strong risk-first frameworks for origination, and how we monitor the capital involved should be comprehensive and conservative. Ours is a decisive, proactive, risk-mitigation approach to managing the loan program so our institutional clients’ principal is always protected.

The three biggest markers of our financing program are:

  • (1) Capital preservation is more important than high yields. We originate loans to the borrowers with the best risk profile instead of focusing on the highest interest rate available. To achieve this, we underwrite each borrower by understanding their business and reviewing their financials. Additionally, Anchorage reviews all eligible collateral to determine loan parameters and safeguards this loan collateral with industry-leading security and the first federally chartered crypto bank.
  • (2) We only lend directly to creditworthy institutions. Anchorage financing does not deploy client assets in DeFi or use it to fund investment “strategies”.
  • (3) We have a powerful lending platform and a dedicated team. We have continuous monitoring of key market metrics and a team that provides 24/7 coverage. We vet our institutional clients thoroughly, acting as agent under our California commercial lending license. Because of this, we’re regarded by our clients as a safe, thoughtful lending partner in the industry. Additionally, we separate key responsibilities so that loan approvals are completed by a risk team outside of our client-facing business to put the interests of our clients first.

Foundation for expansion

As sentiment remains fearful, Anchorage has proven its financing program works — and for that reason, we’re actively expanding Anchorage financing. We’re hiring for five open positions in financing, and we are able to accept assets from lenders who would like to receive yield on U.S. dollars, Bitcoin (BTC), Ether (ETH), and other digital assets. We’ll also soon be offering lending for institutional clients on our mobile app.

Interested in lending or borrowing with Anchorage? Get in touch.

Holdings of cryptocurrencies and other digital assets are speculative and involve a substantial degree of risk, including the risk of complete loss. There can be no assurance that any cryptocurrency, token, coin, or other crypto asset will be viable, liquid, or solvent. No Anchorage communication is intended to imply that any digital asset services are low-risk or risk-free. Digital assets are held in custody by Anchorage Digital Bank National Association and are not guaranteed or FDIC-insured. Any depictions of simulated or past loan performance are not necessarily indicative of future results. Lending products are offered by Anchorage Lending, LLC a California licensed commercial lender.

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