Max Keidun, the CEO of Hodl Hodl, has partnered with Blockstream, Bitfinex, and other institutions to launch a decentralized platform for fiat and stablecoin loans. Known as Debifi, the new platform will allow users to borrow long-term loans in fiat and stablecoins using Bitcoin as collateral.
Debifi was announced during the Baltic HoneyBadger conference on September 3rd. Max Keidun says this project is part of his dream “to get the banks to live by the Bitcoin standard.”
According to Keidun, some banks have already shown interest in joining the platform but have not provided any names at this time.
“We already have liquidity providers, but fiat loans will be added half a year after the platform launches,” Keidun said. Fiat lenders will have to provide appropriate licenses to join Debifi. The platform promises to do their due diligence before allowing an institution to join.
Unlike typical Bitcoin and cryptocurrency lenders, Debifi itself will not provide any loans. Instead, Keidun said, it will work as a marketplace, providing a platform for traditional banks interested in working with digital assets and institutional Bitcoin and cryptocurrency companies.
More Keys and More Security
Debifi is Max Keidun’s second peer-to-peer lending platform. In 2020, he launched a non-custodial lending protocol called Lend, where users could borrow and lend stablecoins anonymously.
The protocol uses multisig escrows. When a user takes out a Bitcoin-backed loan, their Bitcoin is locked in a multisig wallet. This wallet requires two out of three keys to unlock it. One key goes to the lender, another to the borrower, and the last one stays with Lend. If a dispute arises between the lender and borrower, Lend referees and releases the Bitcoin to the appropriate party.
Debifi takes the same idea but adds an extra key. Now there are four keys and it will require three keys to unlock a multisig wallet. The fourth key holder will be one of three reputable Bitcoin companies that have confirmed their involvement. These are Casa Hodl, JAN3, and Blockstream.
This chosen method is meant to help strengthen Debifi’s security. If a malicious party wanted to steal Bitcoin held in escrow, they would have to compromise the platform’s key and the fourth key holder. Keidun also said having more keys will enhance people’s trust in the platform.
“Back when we launched our lending platform, some people criticized us, saying that the platform could collude with one of the sides of the deal, take the Bitcoin out of escrow and scam the other party,” Keidun said. “And now, there is one more key. And the holders are big reputable companies. They won’t scam people.”
Debifi users will also be able to create escrow wallets using their own hardware wallets. This will allow them to use a signature generated by their own device instead of one generated by the platform, as is the case with Lend. While Lend currently offers 12 loans with expiration terms of up to 12 months, Debifi will offer long-term loans of up to five years.
Lessons in a Bear Market
Debifi’s plans come in the midst of a chaotic Bitcoin and crypto market, which has been destabilized by a bearish trend and the collapse of giant crypto institutions like Terra, Celsius, and Voyager. But according to the project and its partners, this crisis provides a valuable lesson.
JAN3 Founder and CEO Samson Mow explained:
If you look at the recent spate of implosions with centralized lending platforms that are based on opaque relationships and unsecured loans, it's clear that the old system is fundamentally broken.
Mow added that failed cryptocurrency lenders did not use blockchain technology to support their products. Debifi, on the other hand, “leverages real technology to deliver a better solution.”
CEO of Casa Nick Neuman said the platform’s approach allows for transparency and gives the user more control of their funds, something which Celsius and BlockFi failed to do.
“What you need is transparency around the risks that you are taking,” he said. “When customers are holding the keys for the collateral that they use, they can see on-chain where those funds are sitting and if those funds are being put at risk.”
Targeting Banks
It appears that banks will be crucial to the operation and success of Debifi. According to Adam Back, the CEO and co-founder of Blockstream, getting banks on board will bring an “enormous pool of capital in conventional capital markets with relatively low interest rates.” This will, in turn, lower interest rates in the Bitcoin lending market.
“The reason borrowing interest rates are high in the Bitcoin ecosystem is that most of the capital at play is Bitcoiner capital,” said Back. “They tend to be heavily invested in BTC and short of USD, so as a borrower you are bidding against their alternative of buying Bitcoin themselves.”
Debifi is expected to launch sometime in the first quarter of 2023.