White Star Capital Digital Asset Fund - Solving for overcollateralization in DeFi with JellyFi
White Star Capital backs JellyFi in their $4.4m round!
Liquidity is scarce and is the core resource in DeFi. dApps and protocols have few alternatives to finance their development or add liquidity through borrowing. Therefore, the extent to which lending protocols facilitate true borrowing where an agent gets into a position of net debt is limited. This makes the current DeFi offering not capital efficient, leaving a gap with the CeFi (Centralized Finance) offering. A viable solution is missing to tackle the corporate debt market.
Indeed, what is apparent in the DeFi market today is that almost all of the borrowing and lending happens in a peer to peer (P2P) fashion with extremely high collateral ratios: most loans are between 50% and 75% overcollateralized.
This stands in sharp contrast to the traditional financial markets where most of the credit is obtained through corporate credit with much lower collateral requirements and more emphasis on assessing the default risk of each borrower, as exhibited in the figure below.
Whereas 80% of debt in traditional finance is unsecured, DeFi protocols remain too capital inefficient for more B2B/corporate use cases today, despite their staggering growth in recent years and clear value proposition.
As DeFi continues to expand as the open API natural extension of capital markets, we believe that lending use cases will have to become more capital efficient to cater to an increasingly professional vs retail demand, which will exponentially grow the market. Larger CeFi lenders in crypto have already mirrored these traditional finance practices, as exemplified by Genesis’ $10bn loan volume outstanding in Q1, the overwhelming majority of which is zero or under collateralized.
JellyFi has built its business at the leading front of innovation in decentralized lending markets and represents one of the most promising crypto projects looking to unlock more capital efficient lending in DeFi. At its core, JellyFi is a lending platform aggregator that enables audited decentralized applications (dApps) and protocols to access under collateralized loans. It allows lenders to earn an extra yield by lending to chosen protocols and dApps. For protocols and dApps, JellyFi is a source of both liquidity and funding for working capital activities (e.g. funding that is akin to corporate credit).
We are extremely excited about the rapidly growing DeFi lending market, and more specifically about new more capital efficient approaches to lending which will help grow the market exponentially over the coming years. We are equally excited to announce our backing of Alexis and the founding team of JellyFi in their $4.4m round alongside Lemniscap, ParaFi, Defiance, Tioga Capital and others.
Check out JellyFi’s website for more on what they’re building!