Archblock, a core developer of unsecured lending protocol TrueFi, is working with Adapt3r, a subsidiary of alternative asset manager MJL Capital, to bring U.S.-regulated community banks to decentralized finance (DeFi).
The two firms plan to focus on expanding access to on-chain credit products and lower the cost of capital for traditional financial institutions, according to Archblock’s Thursday press release.
“We have a number of banks in our pipeline that range in size from $500 million to $5 billion in assets and have a history of conservatively originating loans,” Marcus Leanos, founder and chief investment officer of MJL Capital, told CoinDesk.
The news comes at a precarious time, with undercollateralized lending protocols grappling with loan defaults across the board. DeFi promised a way to make lending without collateral more transparent and less risky for investors, but loans to risk-taking crypto trading firms that ended up being insolvent have led to bad debt piling on protocols such as TrueFi and Maple.
DeFi lending pivots to real-world assets
The partnership also highlights an accelerating trend in DeFi to cozy up with old-school banking and bring real-world assets such as bank loans, mortgages and corporate credit to blockchain-based protocols.
The idea is to provide a way for protocols to boost activity while crypto lending has plummeted during this year’s brutal market downturn, while at the same time traditional credit markets are offering attractive yields thanks to rising interest rates.
Recent examples of protocols linking up with banks are DeFi giant MakerDAO’s $100 million loan to Philadelphia-based community lender Huntingdon Valley Bank, and DeFi credit marketplace Credix opening a stablecoin credit pool with digital lender Clave to lend to Latin American businesses and consumers.
“There’s no limit to the type and range of financial assets that can be efficiently structured and financed on-chain using the technology,” Bill Wolf, chief investment officer of Archblock, said.
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