Crypto lending is back in vogue. Lending firm Genesis said in a report Tuesday its business saw record volumes this year, presumably as the DeFi market surged ahead and institutional demand for crypto increased.
The firm said that in Q2 this year, its lending business added over $2.2 billion in originations, marking the largest quarter ever with a 324% increase in originations year on year. In addition, “active loans” outstanding increased by 118% from Q1.
Yield farmers spike up crypto lending
In an interview, Genesis CEO Michael Moro said the business was growing at a comfortable phase. He added that its growth was a “function of many things,” as long as it was within its risk framework.
Cryptocurrencies, despite their allure and ability to work as a global hedge, remain a high-risk asset marred with fraudulent actors, little-to-no regulation, and high volatility. Still, the emergence of the DeFi market — and yields up to 1000 percent — is starting to create a new narrative.
The Genesis report noted traders seeking new yield opportunities underpinned the huge growth seen in the last quarter. Moro said that a major theme in Q2 was the demand for yield on crypto-assets.”
The search for yield drove markets in crypto and in other asset classes, “but the last three months seemed specifically yield-centric,” the report noted.
However, high growth is unlikely to remain a recurring feature. Much of quarter-over-quarter growth was the result of March’s “Black Thursday” drawdown, said Moro.
“Unless crypto prices go up significantly, I do not expect anything near 120% QoQ growth going forward”
The Ethereum DeFi token shuffle
Genesis traded over $5.2 billion worth of crypto in Q2. Even its newly-launched derivatives desk saw $400 million worth of volume in June. Overall, since the business launched, Genesis has originated over $8 billion in crypto loans spread over Bitcoin, Ethereum, and a few others.
The report said the second-quarter was marked by low volatility — rare for the crypto market — which “forced” traders to turn towards risky strategies like DeFi yield farming for profit. Furthermore, it joined the two earlier outlets for lent capital: lending and call overwriting.
Joshua Lim, the head of derivatives at Genesis, said hedge funds borrowed additional tokens to deposit on platforms like Compound to earn yield. They also shuffled quickly between different tokens.
“The demand to borrow assets which have the most advantageous fee structures increases when the market is hot and rapidly decreases once the market is onto the next asset.”
He noted BAT and REP were the earlier choices as those markets on Compound were paying hefty fees. But, over time, the demand normalized to stablecoins like USDT, USDC, and DAI as they are easier to source and still “highly profitable to farm.”
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