Even so, Maple’s customers include Celsius and Babel which have both frozen customer funds in recent weeks

No contagion so far from Celsius, according to co-founder Sid Powell, while Babel is working with its lender on a $10 million loan

Recent crypto blowups like the astounding crash of Luna and UST, the Celsius meltdown and what now looks like a firesale of BlockFi have spooked the market to the tune of a loss of more than $1.2 trillion since April 1. Those three projects all share a lack of transparency and engage in financial activity in private, what’s known in the web3 world as off chain.  

The 2008 financial crisis had a similar effect on asset prices, as no one knew exactly where the risk was housed, trust went to zero, and markets sold off with enough force to threaten the global economy. It was said later that the public record created by a blockchain would’ve given investors and regulators a clear picture of who owned the risk from swaps and bad mortgage bonds (which is debatable based on banks’ obligation to shield their clients’ business.)  

Projects that have acquired regulatory approval, and the requirement to disclose their books that comes with it, may be gaining more favor with traditional investors, as we wrote about here regarding Arca. It should follow that projects using the openness and auditability of on-chain transactions would also benefit from doing their business in the open.

That’s certainly the hope at Maple, a crypto-lending startup established last year that’s loaned $1.5 billion so far. Co-founded by Sid Powell and Joe Flanagan, Maple is eager to differentiate its business model of on-chain lending for all to see with the more “black box” approach taken by Celsius and BlockFi.

The set up at Maple is as old as finance. Investors lend money to an institution to earn interest on the loans that institution makes with the investor money. Except here, the institution is the Ethereum blockchain where borrowers, lenders and anyone else can see exactly what’s going on. The money – called pools – is managed by teams at Maple, which is now lending to firms that buy and sell millions of times a day, known as market-makers.

“There is a very clear, transparent flow of funds so anyone who is lending into a Maple pool can see who the borrowers are, they can see in real time the performance of those loans,” Powell said to me recently. “Using smart contracts, you’re able to program in things like how the loan should work, how repayments are sent back to people who have deposited into the pools. That’s a really cool innovation that’s only enabled by using the blockchain.”

Read more: Is a $60 Billion Loss Enough to Boost Activity on Regulated Web3 Projects?

Using a different model, crypto lender Celsius took in retail customer deposits and loaned them out at higher rates, offering depositors as much as 19 percent interest. It used arbitrage trades between the spot and derivative price of coins like Bitcoin and Ether to generate such high yields, as well as investing in defi protocols. Yet all of that activity wasn’t disclosed to investors. As of May, it had lent out more than $8 billion and had $12 billion in assets, according to Coindesk. But on June 12, it froze the funds of its 1.7 million customers and created a panic that it was insolvent.

One of Maple’s clients happens to be Celsius. Powell said the firm has a pool that it funded with its own money – with no outside investors -- to lend out to market makers.

“It was from their own balance sheet and their own capital, so that mitigates the situation.” Maple pools are separate from each other, he said. “It doesn’t impact any of the other pools, what’s happening with Celsius at the moment.”

The case doesn’t appear to be as sanguine with another Maple user, Babel, a Hong Kong-based crypto lender. Babel froze client withdrawals on June 17 and has a $10 million loan from the Orthogonal USDC pool on Maple. Orthogonal “has been in daily contact with Babel management since Babel halted withdrawals and is focused on protecting the interests of lenders,” according to a statement on Maple’s web site. The 180 day loan to Babel was made with no collateral changing hands and is paying 7.6 percent interest, according to Maple.

Maple pools are managed by teams who put some of their own money in so if there are defaults the pool managers incur losses too, incentivizing them to make good loans, Powell said.  

“Contrast this with other platforms or some of the issues with [centralized financial] lenders that have been cited, and there is just no visibility there,” he said. “It’s like money goes in and it’s kind of a black box.”

Previously, Powell worked at the National Australia Bank in structured finance, which is part of corporate and institutional banking. His clients included large corporations, insurance companies, asset managers and large overseas banks that were seeking loans. He then went to run treasury at a corporate borrower where he saw the other side of the process and had the idea with his co-founder to create Maple.

Joe Flanagan

The firm lends in USDC, a stable coin issued by Circle that is backed one-to-one with U.S. dollars, and lends a small amount in Ether, Powell said. Maple does not lend Tether.

The focus on chasing yields like 19 percent is going to change to more concern about the counterparty on crypto transactions, he said.

“It’s now becoming increasingly important as the narrative shifts from what was yield – people previously felt that yield was fungible and indistinguishable, and the counterparty risks were less scrutinized,” Powell said. “Now people will be paying a lot more attention to who is using a platform and how they’re using it and the risk of those counterparties. So that’s why we try to provide that transparency.”  

In the coming months Maple plans to offer loans to Bitcoin miners and may expand into loans for tech-savvy startups that are not in the crypto space yet, Powell said.