Anchorage, which holds cryptocurrency assets such as Ethereum on behalf of institutions, is letting those institutions take out a line of credit.
Via a partnership with BankProv, formerly The Provident Bank, "crypto-native funds who have investments in Ethereum and a need for capital" can soon use the ETH to secure US dollar loans.
Anchorage maintains custody throughout, so there's no need for institutional clients to give up their ETH or buy it back. The custodian simply treats it as collateral in case a client is unable to repay the dollar loan (plus interest). Clients with a sizable amount of ETH, meanwhile, can tap into a sizable line of credit without selling their digital assets.
Since the beginning, Anchorage has carefully anticipated institutional needs, solving for secure custody and building a suite of institutional products. Today, bringing Ether-backed loans with @BankProv marks an exciting milestone.
Full details here ⬇️https://t.co/QAaX4K1vmi
— Anchorage Digital (@Anchorage) June 3, 2021
It's the latest service from Anchorage, which, in addition to storing crypto from its customers, also helps them "stake" their tokens to earn cryptocurrency rewards as well as participate in on-chain governance (some tokens essentially give their holders voting rights over decisions about a platform's development).
For lending, Anchorage Digital president and co-founder Diogo Monica told Decrypt, "All Anchorage clients go through comprehensive due diligence and are assessed by our Risk Committee to determine the amount of credit extended and collateralization terms."
The BankProv loans are overcollateralized, meaning they require clients to put up collateral worth more than the cost of the loan. However, Monica said, "Anchorage has other types of loans, including ETH-backed loans, that may be undercollateralized if the borrower goes through risk due diligence."
Other crypto custodians and platforms offer similar services. Retail clients at BlockFi, for instance, can already get crypto-backed loans in Bitcoin, Ether, Litecoin, or PAX Gold. At current rates, a $20,000 USD loan from BlockFi would require 14.83 ETH, or $40,000. This is due to cryptocurrencies' high volatility. In the past month, Ethereum has gone to an all-time high of $4,357 and as low as $1,853. Lenders, understandably, want to ensure their collateral doesn't become worth less than the asset—or that if it does, the loan will still be paid off.
Though Anchorage is partnering with BankProv, one of the oldest financial institutions in the US, it is already a national trust bank. The Office of the Comptroller of the Currency, led by then-Acting Comptroller Brian Brooks, bestowed it with a conditional OCC trust charter in January. However, that charter places limits on its direct lending abilities.
BankProv has been making a push to recruit crypto firms as clients ever since rebanding last July. According to its website, the bank has "leveraged our innovative and adaptive DNA from an almost-200-year history to become a future ready, full-service commercial blockchain bank."