Crypto lenders are the intermediaries between consumers and the wild, unregulated, blockchain-based world of cryptocurrency. As such, they find themselves in an unusual situation with regard to their customers and the assets for which they provide services. As a result, when it comes to choose which currencies to support, lenders perform a delicate act of responsibility, combining public demand with the addition of sustainable, desirable, and secure cryptocurrencies.
Demand vs. approval: The question of endorsement
The fact that a lender’s asset integration is typically viewed as an endorsement in a young industry with a large number of new investors is not surprising. What is often missed when businesses add new assets to their portfolios is the reality that crypto lending is, in fact, a business, and that each asset integration is ultimately a response to demand — a good market opportunity that generates profits for both the business and the customer. Perhaps this is due to the fact that lenders are powerful organizations in a market that has previously lacked the institutional stamp of approval and looks for it through the pioneering enterprises who are defining the industry’s future direction.
Coinbase CEO Brian Armstrong sent out a series of tweets in June 2021, expressing his delight at the exchange’s rapid integration of numerous assets and his determination to keep up the pace of growth. Armstrong noted that „being listed on Coinbase should not be construed as an endorsement of that asset,“ highlighting the narrow line between working with an asset and endorsing it. Despite the fact that their activities differ from those of an exchange, the same idea applies to crypto lenders: it is not an endorsement; it is simply a matter of doing business. Furthermore, there are other approaches to building client-centric and socially responsible organizations.
If not an endorsement, then what?
Although listing an asset on a lending platform does not imply endorsement, it does provide an indicator of the validity, stability, and security of the asset in question. The actions of a crypto lender with respect to a certain cryptocurrency imply that holding it, investing with/in it, and using financial services for it are all compliant with applicable regulations and technologically sound. Lenders stand to lose a great deal by working with unreliable cryptocurrencies, including their customers‘ trust and the future of their business. As a result, they maintain high standards for an asset’s technical robustness, market-wide liquidity, price stability, and legality, among other characteristics. While the due diligence performed by these organizations cannot serve as the aforementioned seal of approval for investors, they can act as a sort of crypto wind indicator, providing a general indication of an asset’s stability and safety without endorsing it..
Thus, cryptocurrency lenders have emerged as a leading indicator of regulatory action, and it is important to note that this intricate interdependence extends both ways, with crypto lenders suspending services for cryptocurrencies as soon as there is even the possibility of new regulatory issues with a coin or token.
This same scenario played out on December 23, 2020, when numerous large exchanges and crypto lenders suspended their XRP services in response to the Ripple Labs lawsuit filed with the Securities and Exchange Commission of the United States. Takeaway: These institutions‘ fast responses to even the possibility of legal concerns with XRP reflect an inclination toward full compliance, competent legal assistance, and a willingness to take immediate action in accordance with the conditions. The truth is that respectable crypto enterprises are the first reactors in the market. They are therefore important entities to monitor when traveling through the area.
Listings and the Binance|Coinbase|PayPal|Tesla… effect
However, even if currency integrations on lending platforms do not indicate endorsement, the acts of firms still have a significant collateral influence on cryptocurrencies. The largest cryptocurrency exchanges in the world, Coinbase and Binance, each have their own so-called „Coinbase-effect“ and „Binance-effect,“ which drive newly-listed coins to rise in value dramatically in the short term. It’s partly because they’ve suddenly become more accessible to a larger number of investors, but it’s also because their inclusion by these exchange behemoths provides buyers with a sense of legitimacy.
An analogous occurrence was noticed in 2020 when PayPal revealed its plans to function using Bitcoin (BTC) as a payment method: the news traveled swiftly and had an overall positive influence on the market. As previously mentioned, the „Tesla-“ or „Elon-effect“ was the most prominent example this year. The „Tesla-“ or „Elon-effect“ began with Tesla accepting Bitcoin as payment for its vehicles in March 2021 and then retracting this opportunity — both actions, it goes without saying, caused a ripple in the cryptocurrency industry. One tweet from Tesla founder and chief executive Elon Musk may have sparked a market decline that lasted over two months, according to some estimates.
While not exhaustive, these examples of non-crypto native companies‘ influence on cryptocurrency pricing demonstrate the power that well-known brands may wield in the turbulent cryptocurrency market. Because of this, all blockchain-related businesses, particularly cryptocurrency lenders, must demonstrate accountability. Crypto lenders are poised to become the financial system’s „banks of the new financial system.“ It is a turbulent market with a large number of smaller retail investors as well as new participants. In the absence of regulatory oversight, the industry must self-regulate, recognizing and limiting the importance of their listings, investments, remarks, and even tweets, as well as the seriousness of their statements.
The technical side of listing assets
When it comes to adding additional assets to cryptocurrency lending services, there are two basic options to consider. Initially, there will be a full blockchain integration, and then there will be a more internal-facing blockchain implementation. The former allows users to deposit and withdraw assets from their wallets, allowing them to have greater total control over their finances. To compensate, such integrations take slightly longer to execute, necessitate the recruitment of scarce technical expertise, and rely on the identification of appropriate and dependable third-party custodians to assure the entire protection of assets at all times.
As an alternative to complete integration, users can utilize a cryptocurrency offering similar to Revolut’s, in which they can only purchase cryptocurrencies and digital assets on the lender’s platform, are unable to withdraw them to an external wallet, and thus do not have access to their private keys. Using the assets held in their client’s name, the provider creates user-friendly exposure to cryptocurrency investments that can be placed on the crypto lender’s platform considerably more quickly than a regular integration would allow. However, while Revolut has received negative feedback from the cryptocurrency community, which has led to the company’s decision to finally launch limited Bitcoin withdrawals starting in May 2021, this method has intrinsic value in a space as volatile as blockchain finance; this is one of the reasons why lenders have adopted this adoption-friendly model for assets such as Polkadot (DOT), Cardano (ADA), Dogecoin (DOGE), and the most recent addition of Solana (SOL).
The crypto community’s famous credo of „not your key, not your coins“ was a natural stumbling block for internal integrations, as it reflected the community’s ongoing quest for maximum security. Despite the fact that they are unable to self-custody their assets, customers make considerable use of them. People desire and want exposure to the new assets that are appearing on a regular basis in this fast expanding market. Using only the slower and significantly more resource-intensive blockchain connections that provide clients greater control over assets, crypto lenders are unable to keep up with demand and are thus forced to limit their clientele’s exposure to numerous innovative and high-performing currencies.
„Not your keys, not your coins“ reflects one of the most important advantages of cryptocurrency: the ability to take control of your cash and ensure their security without having to rely on a third party. However, as cryptocurrency continues to grow in popularity, it is possible that the phrase is becoming a little reductive.
For lenders and other businesses that use internal asset integrations, this strategy should be viewed as a stepping stone toward full integrations, as a means of keeping up with the industry, expanding their operations, and providing their clients with timely exposure to lucrative investment opportunities.
The way forward: Social duties > Legal obligations
Crypto lenders must, at the end of the day, neutralize the messages conveyed by their asset listings, sensitively assess the words and actions associated with their brands, and employ a variety of integration strategies to improve their users‘ experience in this rapidly evolving market. Because of the nascent nature of the industry, many of these initiatives are reliant on the social responsibility of crypto firms and blockchain-based corporate social responsibility initiatives, respectively (CSR).
For example, industry leaders have taken the initiative to shape cryptocurrency regulation, as we have seen with the pending United States Infrastructure Bill; 2) presenting audits of reserves; or 3) educating customers about the assets they work with, the services they provide, and how to use them safely and advantageously through articles, ask-me-anything sessions, support groups, and even metaverse worlds.
Regulation that is still in the process of being developed and uncertain is something that most industries have not dealt with. Because of this, the innovative value in crypto lenders and blockchain companies taking on greater social responsibility and self-regulation duties from the start is in the ability to build a more refined ecosystem with healthier interactions between clients, businesses and regulators. As crypto companies mature from start-ups to institutions with significant gravitas in the blockchain and beyond, these principles of self-regulation and socially-minded services pave the way for a financial world that is guided by ethics and morals rather than solely by profit and legal obligations.
The author’s thoughts and opinions are entirely his or her own and do not necessarily reflect those of CoinNewsDaily. Each investing and trading action entails risk; before making a decision, you should conduct your own research.