Axios Pro: Fintech Deals

August 25, 2022

Axios Pro Exclusive Content

Happy Thursday, fintech friends.

Situational awareness: More than $100 million worth of NFTs were reported stolen in scams over the past year, according to blockchain analytics firm Elliptic, with over 4,600 stolen in July alone.

1 big thing: A bank-DeFi alliance

Illustration of pile of money with hovering cursor

Illustration: Eniola Odetunde/Axios

A deal this week between a community bank and a DeFi organization created a unique alliance that is likely to lead to similar agreements across the space, Ryan writes.

Driving the news: HV Bancorp, the holding company for Huntingdon Valley Bank, announced an agreement with MakerDAO that is making a $100 million loan facility available to the bank in a deal that will bring some real-world assets on-chain.

Why it matters: The deal marks the first commercial loan agreement between a U.S.-regulated financial institution and a decentralized digital currency. A first, and surely not the last.

How it works: MakerDAO has agreed to convert $100 million in DAI to U.S. dollars to be put in a Delaware trust account.

  • Those funds will then be available for future commercial loans originated by HVB.

Between the lines: The agreement offers HVB, a community bank in the Philadelphia suburbs, a large and flexible pool of capital it can draw on, as long as the assets it’s proposing for participation are eligible.

  • “We have a legal lending limit that's small relative to most of our peers, so we're constantly having to look around for partners to provide the level of capital that is needed quickly,” HVB SVP and market president Dan Krewson says.
  • “The ability to have secure, accessible, straightforward access to capital was an appeal from the beginning.”

Meanwhile, MakerDAO gets an out-of-the-box yield solution in which an external party does all the origination, servicing and reporting, and “we just collect a nice little coupon at the end of the day,” says TJ Ragsdale, who manages real-world assets for MakerDAO.

  • According to Ragsdale, those assets are “less correlated to the crypto market than core product” and therefore provide more stable and fixed yields.

Yes, but: There’s another, more strategic reason for MakerDAO to work with a bank like HVB.

  • “It signals to regulators an intent to integrate, as opposed to evade. We are injecting $100 million dollars to mom-and-pop SMEs — the engine of the US economy,” Ragsdale says.
  • “When it comes to how regulators will respond to crypto-native entities, I think they will tread lightly on an entity that is empowering SMEs and on a bank that has been regulated and has existed in the U.S. since the 1870s,” he adds.

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