Cryptocurrency start-ups dangle high yields to tap digital token holders’ idle assets
- Start-ups link cryptocurrency borrowers with lenders, who deposit their digital tokens for high returns, as decentralised finance gains momentum
- US cryptocurrency exchange Gemini expands its service in Hong Kong, touting annualised yields of over 8 per cent
An increasing number of start-ups in Hong Kong are offering cryptocurrency-lending services, claiming to provide high returns. However, as regulations on such blockchain-based decentralised finance (DeFi) are unclear, industry observers are urging clarity to protect investors.
Cryptocurrency exchange Gemini last week rolled out an interest-earning programme, Gemini Earn, which enables its customers to receive an annualised yield of up to 8.05 per cent by lending out their digital tokens to third parties by parking these assets on the platform. A one-month US dollar deposit at a Hong Kong bank, on the other hand, yields 0.01 per cent.
First launched in the US by the New York-headquartered exchange in February, the service has thus far originated over US$4 billion in cryptocurrency loans, according to Jeremy Ng, Gemini’s Asia-Pacific managing director. The service supports deposits of more than 40 cryptocurrencies, including stable coins, or digital tokens, that are backed typically by the US dollar.
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Another start-up, CoinUnited, also offers a lending service whose annualised interest rates can be as high as 13 per cent. The over-the-counter cryptocurrency exchange operator offers the deposit and lending service through its crypto-wallet app.
DeFi makes it possible for users to borrow and lend funds to each other without the need for traditional players such as banks or brokers, thanks to the blockchain’s smart contract. Digital tokens are pooled together by cryptocurrency platforms such as Gemini and CoinUnited which then lend them to borrowers – third-party DeFi blockchain application platforms – who post collateral to back up the loan and pay the individual depositors interest. These platforms essentially serve as a bridge linking depositors with borrowers.