Ribbon Finance Will Lend $10 million to Folkvang and Wintermute

The lending platform of Ribbon was released to the public on Monday, and it enables establishments to borrow money without having to put up collateral first.

If you haven’t been living under a rock for the past few months, it’s likely that you are aware that unstable macroeconomic conditions have caused participants in the cryptocurrency market to become risk apprehensive. However, the early activity in the Ethereum-based structured product startup Ribbon Finance’s recently launched high-stakes loan product, Lend, reveals that this is not the case.

Depositors now have the ability, as of Monday after Ribbon’s Lend went live, to lend unsecured funds to institutional market makers of their choosing who have a high level of liquidity. The system has seen users deposit a total of 15 million USDC, which is a stablecoin whose value is tethered to the US dollar. Out of that total, more than ten million USDC was borrowed by Alameda-backed quant trading business Folkvang Trading and market maker Wintermute, which only recently suffered a loss of one hundred sixty million USDC as a result of a cyberattack.

“It is clear that there is still a desire for large yields in the decentralized financial sector. Users are willing to move out of the risk curve if it makes sense from a risk-reward perspective “Julian Koh, co-founder, and CEO of Ribbon stated in an interview with CoinDesk. It would appear that undercollateralized lending to respectable institutional trading firms is a good fit for this category.

At the time that this article was being prepared, the annualized percentage return on the loan of USDC to Folkvang and Wintermute was close to 7%. This is a huge increase compared to the 0.5% that is accessible on leading decentralized platforms such as Aave and Compound.

Uncollateralized Aave

Lend is referred to as “an uncollateralized Aave” by Ribbon, and it is touted as having “the benefits of both traditional finance and decentralized finance.”
A far lower interest rate can be paid for borrowing USDC from AAVE, but this comes at the expense of locking up another coin as collateral. An institution may do this. To put it another way, the borrower runs the risk of having the liquidity of the collateral locked and taken away from them, which is not the case with Ribbon’s Lend.

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In the meanwhile, users of Lend have the opportunity to increase their yields by making unsecured loans to organizations that have already been examined by Credora to determine whether or not they are creditworthy. In addition, lenders have the ability to liquidate their positions at any moment, provided that there is sufficient liquidity in the pool. According to Ribbon, the vast majority of unsecured lending in Decentralized Finance (DeFi) is for the set period. This means that lenders are unable to withdraw deposits until the loan has reached its maturity date. The word “decentralized finance” (DeFi) is a concept that is used to represent financial activities that are carried out on a blockchain without the assistance of middlemen.

Folkvang’s CIO, Jeff Anderson, stated that borrowing through Ribbon results in greater capital efficiency. “With the introduction of Lend, Ribbon now offers a one-stop shop for the whole DeFi product suite, and we are delighted to be pioneers on the platform,” said the CEO of Ribbon.

The ribbon is credited with pioneering the concept of a decentralized options vault (DOV) in 2021, and they have just created a crypto options exchange known as Aevo. The DOVs have made trading options easier; now, investors need only deposit their assets in vaults, and the vaults will use those funds to purchase yield-generating option strategies.

Ribbon’s entrance into unsecured lending may be an indication that the market currently controlled by companies such as Maple Finance, Clearpool, and TrueFi is beginning to heat up. According to TrueFi, which was referenced in a recent story by Reuters, the entire value of the unsecured loan sector is currently $25 billion. In addition, 11 financial institutions responded positively to a poll conducted by Reuters, indicating that they are eager to continue providing unsecured loans despite the general collapse of the market.

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