Mint Ventures in-depth research report: Maple Finance’s institutional credit business tester

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Is Maple Finance’s institutional credit business worth betting?

Written by: Li Yuxuan, Researcher at Mint Ventures

summary

From the current implementation form, Maple Finance’s institutional credit business space is limited;

Maple Finance has no obvious competitive advantage and valuation advantage over its main competitor, TrueFi;

Business overview

The business direction of Maple Finance is lending/institutional credit lending. There are three roles in its business process: borrower, liquidity provider and liquidity pool representative.

Borrowers are cryptocurrency native institutions, including market makers and market-neutral funds. They can lend funds by way of non-full mortgage, and the mortgage rate can be between 0-50%. Providing credit loans to institutions is also the main value proposition of Maple Finance.

The liquidity provider (liquity provider, in fact, is the lender, in order to avoid confusion, we will use the “funding party” instead) to deposit funds in the liquidity pool to earn interest. The funder can claim the interest earned at any time, but the principal must be withdrawn after the loan is completed. The withdrawal time is currently set to 180 days.

Pool Delegates are managers of liquidity pools, similar to the role of fund managers. They need to assess the credit of institutional borrowers and review loan terms (amount, maturity, interest rate, and mortgage rate). For loan security, Pool Delegates must also pledge at least USD 100,000 USDC-MPL (project native token) LP as a pledge of the liquidity pool to return to the funder in the event of loan default.

In addition to the interest paid to the funder, the agreement will also produce——

Setup fee

It is equivalent to the financing service fee, and the establishment fee will be directly deducted when the loan is released. The establishment fee is allocated between Pool Delegates and the MPL Ministry of Finance, and the MPL Ministry of Finance will periodically allocate it to all MPL holders

Continuation fee

It is equivalent to the fund management fee, the ratio is set by Pool Delegates, and is deducted from the interest received by the funder. The ongoing costs are allocated between the pool delegates and the pledgers of the MPL-USDC LP of the risk reserve.

The current first and only pool is the digital asset fund Orthogonal Trading. Pool Delegates is the founder and CIO Josh Green of Orthogonal Trading. This pool was successfully distributed to Alameda Research, Wintermute, Amber Group and Framework Labs on May 25. Borrowers in China issued a loan of US$17 million and opened the second phase at the end of June. The current pool of funds has reached US$37 million. The specific data of the pool are as follows-

Data source https://app.maple.finance/#/liquidity/60a48265ec0b150011480d2a

Basic situation of the project

Team situation

The founder, Sidney Powell, previously worked at Angle Finance, a non-bank lending institution in Australia, and was in charge of institutional business at National Australia Bank. Powell is a very early DeFi participant. He started to explore the possibility of DeFi non-excess mortgage lending in June 19, and he holds a CFA certificate.

Another co-founder, Joe Flanaga, previously worked as the CFO of a listed company in Australia and has worked in PWC.

By querying LinkedIn data, Maple Finance has a total of 38 employees.

In general, the founding team of Maple Finance has rich experience in traditional finance, and the total number of teams is relatively larger in projects of the same scale, and the team strength is relatively strong.

Historical development and roadmap

What Maple Finance originally wanted to do was Maple Smart Bonds, which is a platform that supports users to make ABS on cDai (Dai’s deposit certificate in Compound), and supports a 3-level structure. Level 1 has better security (high mortgage rate). ) And a slightly lower return, the second level has a slightly lower mortgage rate and a slightly higher return, and the inferior level is borne by the issuer itself. At that time, the product had an MVP (minimum viable product), and it was successfully launched at the end of 19th. This idea is a simulation of ABS products in the real world. At that time, there was room for cDai to be used in insufficient scenarios, but once a platform that supports cDai mortgages (such as Cream) appears, the system will appear unnecessarily complicated.

At the beginning of 2020, Maple officially transformed the direction of credit lending. At that time, the loan idea they mentioned was a simulation of Internet P2P business, including:

  • Hawk: The mortgage rate is required to be 0%, which is a complete credit loan, but before joining a new member, a copy of the passport is required and verified through the teleconference of zoom to thoroughly evaluate the new member. The borrower needs to provide two pay slips. Show income. The envisaged use of borrowing is to purchase consumer goods such as cars or laptops. The interest is generally 5-9%, and the term is 18 months.
  • Happy Medium: The mortgage rate requirement is 20%, and new members need to use Bloom to verify LinkedIn or Twitter. No payroll is required, but the address of the borrower must show that they have at least 1,000 DAI in the past 3 months, the loan period is 6-12 months, and the annual interest rate is generally 10-15%.
  • Light Touch: The mortgage rate is required to be 33%, no identity verification is required, and the algorithm is used to evaluate the probability of default based on the history of the address pass. Small loans are less than 100 DAI, and the annual interest rate is as high as 40-50%.

In June 2020, their front-end was officially launched, and the idea is still the idea of ​​Internet P2P. The highlight that is worth mentioning is that they have cooperated with an institution to launch an address-specific scoring system to replace the scoring card in traditional credit.

However, there are still core problems that cannot be solved in simulating offline P2P credit: KYC of P2P loans and KYC-related credit (Fico points in the United States, PBC credit in China) are scarce resources, while the addresses of loans on the chain are not . Unless the address can be effectively linked to KYC (such as through BrightID and other tools), and the credit information on the chain can be effectively transmitted to the real world, and a complete “recourse as a service” can be established, the P2P credit on the chain will It has always been a niche market.

For recourse as a service, please refer to ” 20/21 DeFi Review and Outlook: The Rise of Emerging Value Networks and the Potential of Wall Street Interface

In December of 20, in their financing article, the disclosure direction was changed to credit to institutions, and they announced the completion of the transformation in April.

After the completion of LBP (Liquidity Bootstrapping Pool, a form of raising funds from a price reduction auction) in early May of this year, MapleFinance released a road map. At present, the items in the road map are proceeding as planned and all executed. include–

  • The Balancer 50:50 pool will be opened on May 2nd-After the completion of Maple LBP, a 50:50 MPL:USDC balancer pool will be created, which will be used to provide initial secondary market liquidity for MPL tokens, and when the agreement is deployed Mortgage for the startup pool. The initial MPL: USDC in the balanced pool is provided by the Ministry of Finance of MapleDAO and will be further supported by investors, who will bet on their MPL holdings in the first pool deployed on Maple.
  • On May 12, the ETH mainnet deployment was completed and the first liquidity fund pool was created. The upper limit of the startup pool is 15 million U.S. dollars, and Orthogonal Trading is the representative of the pool.
  • On May 20th, a liquidity mining plan for C-end users was announced. Retail participants will be able to deposit USDC into the liquidity pool for a six-month lock-up period to obtain USDC income and MPL rewards.
  • On May 25, it successfully reached a loan of US$17 million to borrowers (including Alameda Research, Wintermute, Amber Group and Framework Labs).
  • From the end of June to the beginning of July, the second liquidity capital pool and additional loans – four to six weeks after the creation of the startup capital pool, the second batch of loans will be funded by Orthogonal Trading, and the second liquidity pool will be added to Maple. Borrowers on the waiting list will have the opportunity to submit loan applications.

From the perspective of Maple’s development history, they have been committed to the release of liquidity in DeFi lending. At first, I chose asset securitization, and later I chose P2P credit. Until now, the established institutional credits are all around this direction. The team’s exploration in this direction is still relatively firm and worthy of recognition.

Financing

Maple Finance has a relatively strong lineup of investment institutions, with a total of 2 rounds——

December 2020: Estimated at 0.56U/MPL (fully circulated market value of 5.6 million US dollars) (reverse analysis, the process is described below)

Maple Finance, a DeFi lending platform for institutions and enterprises, announced that it has completed a $1.3 million seed round of financing through the sale of governance token MPL. Investors include Cluster Capital, Framework Ventures, Alameda Research, FBG Ventures, One Block Capital, The LAO, Bitscale Capital, Synthetix founder Kain Warwick and Aave founder Stani Kulechov

March 2021: Valuation is 5U/MPL (full circulation market value of 50 million US dollars)

Maple Finance completed a $1.4 million financing led by Framework Ventures and Polychain Capital to help further develop and launch the pool.

According to the disclosure of the project party at the time of LBP, this round of valuation is 5U/MPL, that is to say, the total of 1.4 million US dollars in this round of financing has received 280,000 MPL. According to the investor’s total acquisition of 2.6 million MPL, it can be reversed. At the end of 20, this round of 1.3 million US dollars received a total of 260-28=2.32 million MPL, and the cost of this round was 0.56U/MPL. It can be seen that the valuation difference between the first round and the second round of valuation was 10 times within 3 months.

In addition, this article also discloses that the team’s token has 2 years of vesting time, and the investor’s token has 1.5 years of vesting time.

Mint Ventures in-depth research report: Maple Finance's institutional credit business tester

At the end of April 2021, Maple Finance completed the LBP (Liquidity Bootstrapping Pool) in Balancer, with a total raised amount of $10,332,236. The average cost of LBP is $21.98, which is equivalent to 220 million U of FDV.

Token analysis

Token

The project’s native token is $MPL, with a total of 100 million pieces. The distribution and unlocking of the tokens are shown in the figure below:

Mint Ventures in-depth research report: Maple Finance's institutional credit business tester Data source https:// maplefinance.ghost.io/mpl-tokenomics/

Token economy

In addition to governance, MPL also has two roles: capturing expenses and acting as a risk reserve (the function is not yet online).

As mentioned above, MPL can capture part of the set-up fee (allocated by MPL on a regular basis, no specific method has been mentioned) and part of the ongoing fee (through LP for risk reserves).

Risk reserve (this feature is not yet online). From the official document, we can see that the team chose MPL-USDC’s LP as the risk reserve, and Pool Delegate must first prepare a part of the risk reserve when creating the pool , As a credit enhancement measure for the liquidity pool.

Price trend

Mint Ventures in-depth research report: Maple Finance's institutional credit business tester Data source https://www.coingecko.com/en/coins/maple

The current price of MPL is 6.37U, which is close to the price of the second round of private placement.

The current circulating market value of MPL is US$10.2 million and the fully circulating market value is US$63.7 million.

Business analysis

Competitor

In the market segment of institutional credit loans (non-flash loans), Maple’s obvious competitor is TrueFi.

Maple and TrueFi are actually very similar. They are both institutional non-full mortgage loans, and the yield of the stable currency part is not as high as about 10%), and most of the APY comes from the distribution of its own tokens.

The difference is that Maple uses a pool delegate to introduce and evaluate loans, and each lending pool can be introduced and evaluated by a different pool delegate. To some extent, each representative of the liquidity pool is a fund manager, and investors can choose different fund managers to invest.

All TrueFi loans are evaluated by the DAO. Investing in TrueFi is equivalent to fully trusting the DAO’s investment capabilities. There is indeed a significant gap between the two, but I personally believe that this gap is not a key factor in the business.

In terms of business data, since it went online at the end of November 2020 and was forwarded by sbf and ac, TrueFi has completed a total of US$220 million in institutional loans, and has also accumulated a number of institutional customers such as Alameda, Wintermute, and Poloniex (Alameda and Wintermute are both in Maple and TrueFi’s client list).

In terms of financing, TrueFi’s operating team TrustToken completed a strategic financing of US$20 million in 2018. Investors include a16z crypto, BlockTower Capital, Danhua Capital, Signia Venture Partners, Slow Ventures, ZhenFund, and their backgrounds are also quite good.

At present, the TRU token has a circulating market value of 51.15 million US dollars and a total market value of 211 million. It has been listed on Binance. The price trend is as shown in the figure below. The token price is near the historical lowest price——

Mint Ventures in-depth research report: Maple Finance's institutional credit business tester Data source https://www.coingecko.com/en/coins/truefi

In addition, there is also Goldfinch who is in the direction of credit loans. They were founded by two former Coinbase employees and received $1 million in seed rounds including coinbase venture investment and $11 million in Series A financing led by a16z. Since its launch in December last year, it has loaned US$1 million to thousands of borrowers in Mexico, Nigeria and Southeast Asia. But their business is unsecured loans for individual users, which is not exactly the same as Maple Finance’s business.

At present, the entire institutional credit business is in a very early stage. Overall, Maple has no obvious advantages over TrueFi in terms of business model, financing background, actual business data, and even the simple token market value (the business volume is still too small to be effectively valued).

industry analysis

The business direction of institutional credit that Maple chooses is, on the one hand, for institutions, on the other hand, non-mortgage credit can also be regarded as expanding credit leverage and introducing new liquidity. These two subdivisions are the business directions that the author is more optimistic about. As far as Maple’s current business is concerned, it is not very sexy.

If the services provided by Compound and Aave to institutions can be briefly described as “investing the money of over-the-counter institutions into the cryptocurrency market”, then the institutional credit loan business of Maple and TrueFi can be simply described as “raising retail funds to Cryptocurrency Institution”. The fundamental reason why this business is difficult to do is that the risk-free rate of return in the cryptocurrency world is too high (this may be precisely the reason why Compound and Aave’s institutional business are optimistic), and the rate of return that institutions can pay is limited.

Judging from the data of TrueFi and Maple, even cryptocurrency institutions can afford loan interest rates in the range of 8-10% for January, 9-12% for March, and 10-15% for June. Due to institutional business needs, deposits can only be made on a regular basis, which means that users need to give up the most important thing in the cryptocurrency world-liquidity. The loss of liquidity makes this rate of return seem not attractive enough. Therefore, Maple and TrueFi, in order to attract users, usually provide high-value project token incentives to funders.

The problem is, on the one hand, it is not easy to maintain a high APY (that is, the currency price); more importantly, on the other hand, how to match the interest rate that institutions are willing to pay and what retail investors can accept after the distribution of project tokens rate of return?

Generally speaking, institutions will be more rational, so the interest rate paid by borrowers will have a greater correlation with qualifications, and institutions that are willing to pay higher interest rates will also have worse overall qualifications. This may increase the risk. And even for top cryptocurrency institutions, their business is not absolutely secure (think Mentougou and fireblocks’ coin loss incidents). For projects engaged in institutional credit business, an accident may have a serious impact on the project.

Therefore, in general, we believe that the current institutional credit business space is limited.

Reference

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