- The FTX crash rocked the crypto industry.
- Lender Maple Finance was one of the projects dragged down by Sam Bankman-Fried.
- Now it’s staging a comeback.
Sam Bankman-Fried almost killed Maple Finance.
The collapse of FTX, the crypto exchange, in 2022 almost dragged down the crypto lender, too, especially after the strain caused by the blow-up of the Terra blockchain that May.
Maple’s deposits, which once exceeded $900 million, cratered 97% to just $25 million.
“People were saying, ‘Lending is dead. It has no place in crypto,’” Sidney Powell, Maple’s co-founder and CEO, told DL News.
And yet, just over two years later, Maple is staging a remarkable comeback.
Last week, deposits topped $1 billion for the first time ever, double what the platform had at the start of the year.
Revival
The secret to Maple’s revival? It bet big on institutions, an underrepresented yet fast growing cohort of DeFi users, according to Powell.
“I’m a big believer that competition is for suckers,” Powell said. “You could win competitions through out-executing your peers, but the best thing to do is try and find a way to differentiate yourself.”
Maple went all in on catering its products to hedge funds, family offices, and trading firms while other lenders focused more on retail users.
By doing so, Maple minimised competition and got more lucrative clients. Institutions are generally willing to pay a little bit more for products that are catered to their specific needs, Powell said.
Institutional crypto adoption has exploded over the past year as investors flock to digital assets to diversify their portfolios.
Asset managers like BlackRock see blockchains as a way to upgrade creaking financial infrastructure, while banks plan to launch their own stablecoins as more of their customers tap into crypto.
Maple’s comeback is also part of a wave of crypto lenders that are quickly recovering lost ground.
A world of trouble
It’s comeback wasn’t easy.
In late 2022, the platform was in a world of trouble. Back then, it focused on matching lenders with institutional borrowers to facilitate riskier credit-based lending. Here, institutions borrow crypto without putting up more in collateral than the value of their loan.
In December that year, one of Maple’s institutional borrowers, Orthogonal Finance, defaulted on $36 million worth of loans.
The trading firm had kept the majority of its funds at FTX, which had just declared bankruptcy after a $8.7 billion hole was discovered in its balance sheet.
Orthogonal’s bad loans impacted between 30% and 80% of investors in the affected lending pools.
The episode crushed investor confidence as lenders feared more defaults would follow.
Gap in the market
Maple made two big decisions that contributed to its turnaround, Powell said.
In early 2023, the platform shifted its business model away from credit-based lending to comparatively safer over-collaterised lending. It also started underwriting loans itself, where it had previously let others navigate the risks.
‘At $2 trillion, the volume of lending is going to be hundreds of billions.’
— Sidney Powell, Maple Finance
The move gave Maple more control over who it lends assets to and which assets it will lend against. But it also amplified the risks for the platform if something were to go wrong.
Maple also started to accept new forms of collateral.
At the time, there were few places that institutions could take out loans against cryptocurrencies like XRP or Solana. Because those assets live on different blockchains, it’s difficult for lenders who rely solely on smart contracts to set up markets for them.
Lending’s comeback
Maple isn’t the only DeFi lender to bounce back in recent years, though.
Euler, a once fast growing DeFi lender, flatlined after suffering a $200 million hack in 2023. It relaunched in September, and hit an all-time high of $1.3 billion in deposits just seven months later.
Meanwhile, several newer lenders like Spark, Morpho, and Kamino have all swelled into multibillion-dollar protocols, pushing the total DeFi lending market to $40 billion.
When asked how Maple has been able to grow with so much competition, Powell said it was down to the DeFi lending market recapturing lost ground, in addition to its strategy of catering to institutions.
“Total lending is still well below where it was in 2022 so we haven’t actually even caught up to where we were,” Powell said.
Room to grow
The lending market has room to grow beyond its pre-FTX crash levels, Powell said.
The way he sees it, lending should always be a function of the total number of stablecoins sloshing around the crypto market.
Put simply, if the stablecoin market grows, the demand for crypto lending should also grow proportionally.
In January, analysts at Bernstein predicted the stablecoin market will double to $500 billion this year. Similarly, Standard Chartered Bank forecasts that the supply of US dollar stablecoins will surge to $2 trillion by 2028.
“At $2 trillion, the volume of lending is going to be hundreds of billions,” Powell said.
Maple is also experimenting with new products that it hopes will appeal to institutions.
The platform launched a Bitcoin yield product in February as part of an initiative to provide asset management services.
The product is growing fast, which Powell attributes to the influx of new institutional investors dipping their toes into crypto by buying Bitcoin and looking for a way to earn yield on it.
There’s also structured notes, hybrid financial instruments that combine a bond with a derivative. They’re appealing to investors who want a stable yield but also want exposure to price increases.
Institutions haven’t been that interested in Bitcoin structured notes in recent months because the market has been flat, Powell said.
But Maple will be well positioned if the market picks up again.
“There’ll be a bull market again at some point,” Powell said.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
