Crypto lenders are the institutions situated between consumers and the untamed, blockchain-based, and often unregulated space of cryptocurrencies.
Crypto lenders are the institutions situated between consumers and the untamed, blockchain-based, and often unregulated space of cryptocurrencies. As such, they are in a peculiar position when it comes to responsibility towards their customers and the assets for which they provide services. Consequently, when choosing which currencies to support, lenders lead a delicate dance of responsibility, a balancing act between catering to popular demand and adding cryptocurrencies that are sustainable, worthwhile and safe.
Demand vs. approval: The question of endorsement
It’s unsurprising that in a nascent industry full of new investors, a lender’s asset integration is often taken for endorsement. What tends to be overlooked when companies add new assets to their range of services is that crypto lending is, in fact, a business, and any asset integration is ultimately a response to demand — a good market opportunity that generates gains for business and clients, alike. Perhaps this is due to lenders being influential entities in a space that has historically lacked the institutional stamp of approval and looks for it through the pioneering businesses shaping the industry.
In June 2021, Coinbase CEO Brian Armstrong issued a series of tweets concerning the exchange’s rapid integration of multiple assets and its intention to keep up this pace. Armstrong wrote that “one should not take being listed on Coinbase as an endorsement of that asset”, denoting the fine discrepancy between working with an asset and endorsing it. Even though their operations are different from that of an exchange, the same principle applies to crypto lenders: It is not an endorsement, it’s just business. And there are many ways to create client-centric and socially responsible businesses.
If not an endorsement, then what?
Listing an asset on a lending platform may not be an endorsement but it is an indication of a certain degree of its legitimacy, stability and security. A crypto lender’s operations with a given coin mean that owning it, investing with/in it and using financial services for it is regulatorily and technically sound. Lenders have a lot to lose from working with unreliable cryptocurrencies including funds as well as their customers’ trust and the future of their business; hence, they maintain high standards for an asset’s technical robustness, market-wide liquidity, price stability and legality. While the due diligence of these companies cannot serve as the aforementioned stamp of approval for investors, they can be a crypto wind indicator of sorts, providing a general indication of an asset’s stability and safety without endorsing it.
Crypto lenders have thus become the bellwether for regulatory action and it is worth noting that this intricate inter-dependence goes both ways — suspending services for cryptocurrencies immediately upon even the potential for new regulatory issues with a coin or token. This exact scenario played out on December 23, 2020, when multiple major exchanges and crypto lenders halted their XRP services in light of the U.S. Securities and Exchange Commission lawsuit of Ripple Labs. The valuable takeaway is that these institutions’ immediate reactions to even the possibility of legal issues with XRP demonstrate a tendency towards full compliance, competent legal counsel, and readiness for immediate action in accordance with given circumstances. Essentially, responsible crypto companies are the industry’s first reactors and can be useful to watch when navigating the space.
Related: SEC vs. Ripple: A predictable but undesirable development
Listings and the [Insert company name] effect
Although coin integrations on lending platforms do not denote endorsement, companies’ actions still have a strong collateral effect on cryptocurrencies. The biggest crypto exchanges in the world both have their respective so-called “Coinbase-effect” and “Binance-effect” that cause newly-listed coins to appreciate significantly in value. On one hand, this is because they suddenly become available to a wider audience of investors but in addition, their inclusion by these exchange giants gives buyers a sense of credibility.
A similar phenomenon was observed in 2020 when PayPal announced its plans to operate with Bitcoin (BTC): News spread quickly and had an overall uplifting effect on the market. This year, the predominant example was the “Tesla-” or “Elon-effect” which began with Tesla accepting Bitcoin as payment for its vehicles in March 2021 and then retracting this opportunity — needless to say, both actions caused a ripple in the crypto industry. A couple of months later, Elon Musk, himself, arguably triggered a market downturn that lasted nearly two months with a single tweet.
Related: Experts answer: How does Elon Musk affect crypto space?
These examples of non-crypto native companies’ influence on crypto prices are not even close to exhaustive and portray the sway big brands can have…
cointelegraph.com