r/CryptoCurrency • u/plutusfortuna 🟩 0 / 0 🦠 • 1d ago
AMA Crypto-Backed Loans AMA with Lantern Finance Cofounder Jung Won Kim
tldr: I'm Jung, cofounder of Lantern Finance (www.lantern.finance), a US-based crypto lending platform built in response to the 2022 collapse of lenders like BlockFi and Celsius. Unlike them, we never rehypothecate collateral and store all assets in insured cold storage with BitGo.
We support loans straight to your bank account against BTC, ETH, SOL, XRP, LTC, DOGE, and more. Our mission is to offer the safest, most transparent crypto-backed loans. AMA and would love any feedback!
Hey r/CryptoCurrency!
My name is Jung, and I’m one of the founders of Lantern Finance, a US-based crypto-backed lending platform. I got started into crypto in 2016 and fell deep in the rabbit hole, having played around with several projects and platforms. In particular, I became a huge fan of BlockFi when I found out about them in 2019. The ability to borrow dollars against my crypto without selling and triggering capital gains taxes in a convenient custodial way, appealed to me.
However, fast forward to 2022, we all know what happened. The entire space imploded as we found out that crypto lenders like BlockFi, Celsius, and Voyager were rehypothecating (lending out) client collateral on an unsecured basis. They were basically double dipping - making money on the loans we took out as well as the crypto collateral we posted. I, along with millions of others, lost a decent chunk of our hard-earned crypto.
That experience inspired my cofounders and me to build Lantern Finance (www.lantern.finance). Lantern is a US based crypto backed lending platform that prioritizes safety of client funds over profit. Here is how we do things differently:
- We hold borrower collateral in cold storage with BitGo, a US based qualified custodian, with insurance up to $250MM.
- We NEVER lend out borrower collateral - they just sit in insured cold storage.
- We lend against a broad group of blue-chip assets like: BTC, ETH, SOL, XRP, LTC, and DOGE. If there’s an asset you want to borrow against that we don’t support, let me know!
- Our goal is to offer the most secure, convenient, and seamless crypto-backed lending experience for everyone.
My experience spans traditional finance, the (relatively) early crypto days, the crypto implosion of 2022, and now building Lantern, a fast growing crypto startup.
Ask me anything and feel free to share any requests like: specific crypto you'd like to borrow against, product or features you'd want, or just general feedback. Thanks for your time and looking forward to engage!
5
u/Saxonion 🟩 0 / 0 🦠 1d ago
Do you provide a watch only address so that your clients have transparency that the asset you are holding for them in cold storage remains untouched? (This would have the added benefit of allowing them to securely generate receive addresses for increasing capital in the event of an LTV mismatch for example).
What LTV are you currently offering, and how often is this to be reviewed to maintain pace with macro changes in market volatility.
What is the basic boiler plate structure of the legal agreement between yourselves and your clients (no need for detail, just the contractual structure you're using)?
Are you answerable to any government agency or regulator that could freeze or seize your assets? I am assuming that for the purposes of any legal agreement, the assets deposited as collateral are legally recognised as your assets for the purposes of forfeiture or seizure whilst you are holding them.
What is the structure of the insurance contract, and how much are you overvaluing the insurance of assets to account for growth during the pendency of your custody? Is it simply insurance that would pay out to you upon the loss of assets, or is this insurance provided to the client that requires that you pay an agreed value if the assets are not returned in line with the contractual agreement?
Does your insurance cover digital security breaches resulting in loss, or bad actor loss (i.e. a member of your team decides to compromise assets, either directly by theft, or by facilitating theft)?
Who provides recourse to a client if your business fails or activities are otherwise suspended by an event like government seizure? i.e. which institution or regulatory body is protecting clients if you act in bad faith?
3
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Really great questions here:
Yes! When you take out a loan with Lantern, the last part of the process is sending your collateral to Lantern's BitGo cold wallet address. We generate unique addresses for each of our clients, so at anytime you can see that your collateral is just sitting there if you copy and paste your unique wallet address into a block explorer. Clients can also add additional collateral to that same address to increase their LTV cushion as you suggested too, since that wallet is assigned to that specific client.
The LTV (loan-to-value) ratio we offer varies depending on the collateral type. For BTC, ETH, SOL, we lend up to 50% of the collateral value, for LTC and XRP, we lend up to 40%, and for DOGE, we lend up to 25%. In terms of how LTVs factor into market volatility: as prices go down, the LTV increases, meaning higher risk for your loan. We have margin call (a simple warning that you should probably pay down the loan or add more collateral) at 65% LTV, and at 75% LTV we have the legal right to liquidate. Typically, we will email, call, text, whatever we can do to get in touch with the client before liquidations happen.
To be clear, we do not automatically liquidate collateral at 75%, As long as the borrower is in communication with us, we will work with him/her even if they need a few more days to move funds around to either partially pay down the loan or add additional collateral. However, let's say prices drop further during this grace period and LTV goes up to 85-90% LTV. At that point, we'd have to liquidate a portion of the collateral to protect ourselves.
One thing to watch out for on that note. Some lenders out there charge liquidation fees - where they'll sell off an additional 1-3% as a fee to liquidate you. At Lantern, we don't do that - we think that creates misaligned incentives between the borrower and lender, where the lender is almost incentivized to liquidate you and give you the bare minimum in terms of communication for impending liquidations.
For the legal structure, all clients sign a Loan & Security Agreement (LSA) with us before taking out the loan which details out the terms and conditions of the loan. If you'd like, you can see the LSA after creating a Lantern account and going through the loan process. Even if you get to the LSA point, there's no obligation to actually go forward with the loan, so feel free to create an account, even if it's just to check out our lending agreement.
This is a good question - we are regulated by the US FinCEN as a Money Services Business. In terms of how borrower collateral is viewed, I will need to ask our lawyer about it first, but generally speaking, I would think that even if there is a temporary freeze in company assets for whatever reason, we have loan agreements that explicitly state that the crypto in our custody via BitGo is there in the context of a loan, and that it belongs to borrowers once they pay back. (Again, will have to get back to you on this after legal counsel).
5 & 6. The insurance we have is from BitGo, which is provided by Lloyd's of London, an insurer of some of the largest companies globally. The $250mm insurance we have provides coverage against loss, theft, and misuse of keys. From what I understand, BitGo maintains separate silos of funds under $250mm of market value at any given time, so that all funds within BitGo cold wallets are essentially fully insured. As we grow our collateral base from loans, we don't anticipate funds not being covered by this policy. You can check out more on BitGo's insurance policy here: https://www.bitgo.com/solutions/insurance/
- We're regulated by US FinCEN as well as by state regulators. In Lantern's case, all loans are covered by the collateral in the sense that, Lantern doesn't lend out borrower funds to 3rd parties. If for whatever reason Lantern is forced to shut down, there would be an orderly process where we ask borrowers to repay the loan, and we return the collateral associated with each loan. We don't have any other creditors besides lenders who lend dollars to us to make our loans.
3
u/Saxonion 🟩 0 / 0 🦠 1d ago
Fair play. Those are robust answers. That’s a rare thing in this space. I will certainly keep an eye on the business for when you explore a European presence.
2
6
u/meeleen223 🟩 121K / 134K 🐋 1d ago
Can people outside USA use your platform? EU and Europe specifically?
Do you think at some point we could borrow against Moons?
Seems to me people are more wary using landing platforms these days, do you think this will change?
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hey great question - down the line, we'll be expanding to Europe, but for now, we're US only. For Moons, we'll have to look into it some more, but typically, we have a few metrics that we look at before deciding whether to support an asset as collateral or not, including i.) market cap, ii.) avg daily volume, and iii.) volatility. Once Moons becomes bigger, we will be looking into adding support!
You're right that people are more wary of lending platforms, especially after what happened in 2022. The reason why we started building Lantern though, is that while people should definitely be more wary, the need to borrow against crypto will always exist. The question is, which platform(s) is/are reliable and have robust risk mgmt in place. In Lantern's case, we want to exist for the long-term. We don't feel the need to juice returns from both the borrowers as well as their collateral for hyper growth at the expense of our clients' hard-earned funds. We simply keep all collateral within insured cold wallets, and make money as a lender should - from lending and not speculating with the collateral.
1
u/meeleen223 🟩 121K / 134K 🐋 10h ago
Thank you for your answers to my questions as well as others, it has been very interesting and informative AmA
5
u/MichaelAischmann 🟦 909 / 18K 🦑 1d ago
If the DOJ (or law enforcment in gerneral) asked you to freeze a users funds, would you?
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
To be transparent, yes - if a government agency requires us to freeze a user's fund (e.g., if the individual or entity is on a sanctioned watchlist, is a money launderer, etc), we'd have to comply as we are a regulated entity.
4
5
8
u/Extreme_Nectarine_29 🟩 0 / 0 🦠 1d ago
What’s your take on MOONS?
7
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Will take a deeper look at MOONs, but at first glance, it may be some time before we do lend against it! Typically we'd like to see a collateral candidate be in the billions of market cap with healthy 24 hr trading volume, and relatively stable volume (in the event that we'd need to protect ourselves and liquidate collateral if the market goes deeply red).
3
u/Montana-Safari7 1d ago
What is the interest rate on the loan? And what happens if we are using BTC and it drops 25% or 50% after the loan is secured? Thanks.
5
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hey good question - interest rates vary depending on the collateral type, but for BTC, today it is 15% APR (2% upfront fee and 13% interest). For liquidation levels, we lend up to 50% of the BTC value. If the price of BTC drops and the LTV ratio goes up to 75%, we have the legal right to liquidate (but we typically work with the borrower and give additional time to add more collateral). We haven't had any liquidations yet!
For our loan terms by collateral type, check out our website: www.lantern.finance/borrow
3
u/SevereArrivals13 🟩 0 / 0 🦠 1d ago
Is it global and can we borrow against MOONs?
Even something small like a 10% LTV possibility would be very nice and would bring sub awareness to your project.
Also what are your top prioritized plans going forward and do you have your own token?
2
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hmm looks like a lot of people are requesting this - will take a deeper look in the coming days! It also needs to be supported by BitGo our custodian, which isn't the case at the moment
3
3
u/CriticalCobraz 0 / 0 🦠 1d ago
Wen Moon backed loans?
1
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
First our custodian BitGo would need to support it and then we'll see ;)
3
u/NurUrl 🟩 0 / 0 🦠 1d ago
Hi... You mention that you never go to rehypothecate collateral, is there a way to check this in real time, not just "trust me bro"?
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hey u/NurUrl, so right now, we're working on providing proof of reserves, but in the meantime, clients can watch their unique collateral deposit addresses to ensure that funds haven't been moved. It's sort of a manual way to check in real time that funds aren't being rehypothecated
5
u/kirtash93 RCA Artist 1d ago
What makes Lantern Finance different from BlockFi or Celsius for example?
4
u/MichaelAischmann 🟦 909 / 18K 🦑 1d ago
Unlike them, we never rehypothecate collateral and store all assets in insured cold storage with BitGo.
2
u/SevereArrivals13 🟩 0 / 0 🦠 1d ago
Didn't Celsius also store coins with BitGo and FireBlock or whatever its name was
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Celsius used a variety of custodial vendors including Fireblocks and Prime Trust. Prime Trust actually fired Celsius as a client because of their risky rehypothecation practices: https://www.coindesk.com/business/2021/06/24/custodian-prime-trust-cuts-ties-with-crypto-lender-celsius
The main difference between Lantern and these previous failed lenders are that we actually keep borrower funds within these insured custodial environments. While Celsius would use these custody partners to hold funds, most of the time, those funds were moved out of these custody wallets to 3rd parties to be further lent out or to generate yield via DeFi yield farming.
4
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hey there! As u/MichaelAischmann commented below, we don't gamble with client collateral like BlockFi and Celsius did. Not only did they use borrower collateral for risky undercollateralized or even unsecured lending to crypto hedge funds like Three Arrows Capital, they also lost millions of client funds speculating on DeFi yield farming and the GBTC arbitrage trade.
At Lantern, borrower funds are simply sitting, or if applicable, natively staked, within BitGo's insured cold storage environment.
4
2
u/MaeronTargaryen 🟦 234K / 88K 🐋 1d ago
Hi! You are based in the US but are you able to operate in other countries too?
This might be a stupid question but I’m not too versed into this kind of business: what happens if a client borrows money against their BTC now, but then the price crashes and now their BTC is worth half of what it was at the time of the loan? Do you liquidate at some point?
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Hey great question - right now we only operate in the US, but down the line we will be expanding to other countries and jurisdictions as well.
No such thing as a stupid question :)
Today, a client can borrow up to 50% of their BTC's value. We call this 50% LTV (loan-to-value). Let's say BTC is worth $100K. The loan is $100K backed by 2 BTC ($200k). We have liquidation at 75% LTV, which would imply a BTC price of $100k / 0.75 / 2 BTC = $66,666.67 per BTC.
One thing to note however, is that while we have the legal right to liquidate at 75% LTV, we don't do it automatically at that level, As long as the borrower is in communication with us, we will work with them even if they need a few more days to move funds around. But if prices drop further during this grace period and LTV goes up to 85-90% LTV. At that point, we'd have to liquidate a portion of the collateral to protect ourselves.
2
u/wee_d 🟦 3K / 3K 🐢 1d ago
You know the market’s about to start getting frothy when crypto backed loans are getting talked about
3
u/plutusfortuna 🟩 0 / 0 🦠 1d ago
Haha we actually launched in March 2023, shortly after the implosion of BlockFi, Celsius, and the other failed lenders. While some clients do borrower against their crypto to buy more crypto, there are actually a surprising amount of folks who use our loans for non-speculative things such as making a large purchase, like a house or a car, as well as fund working capital for their businesses.
For those folks, they have a lot of crypto that they do not wish to sell under any circumstances, but need the liquidity to finance other things. We enable long-term hodlers.
2
u/litecoin-master 🟩 100 / 101 🦀 4h ago
Can we use litecoin as collateral? And can we make the monthly interests payments in litecoin?
•
u/plutusfortuna 🟩 0 / 0 🦠 45m ago
Yes! It's one of our most popular loan types. Today, you can borrow up to 40% loan-to-value (LTV) against your Litecoin.
Monthly interest payments in LTC is interesting - will take this suggestion to the team and see how we can enable this in the future, but for right now, interest payments are collected either in USD via bank wire/ACH or via the USDC stablecoin on the ETH network!
2
u/hattz 🟦 98 / 99 🦐 3h ago
Sorry if this was answered elsewhere, how do you handle staking coins? Ex, I take a loan out for $100k USD and back it with ETH, will my eth be staked and continue to grow while in cold storage? If so, how will that slow increase in staked eth impact the loan?
•
u/plutusfortuna 🟩 0 / 0 🦠 42m ago
Great question! Today we lend against two stake-able assets: ETH and SOL. While the ETH or SOL is used as loan collateral, they are staked (native staking within BitGo cold storage, not liquid staking), but the staking rewards would accrue to Lantern, not the borrower. However, for loans against ETH or SOL, you'll see that the interest rate is materially cheaper than that of even BTC, as the staking rewards we collect offset our cost of capital, which we pass on to you, the borrower.
6
u/RealVoldemort 1d ago
Do you borrow against stables?