Tiiik prepares to bring DeFi savings to the masses
The eye-watering returns are made possible by pledging stablecoins, which can be borrowed by others who pay interest. Lenders also receive income from collateral pledged by borrowers, to secure blockchain networks.
Initially, Tiiik will provide TerraUSD (UST) in the Terra blockchain.
Governed by smart contracts, DeFi lending systems rely on a principle of overcollateralisation: if the collateral (various cryptocurrencies) pledged to receive a loan falls below a predetermined level, a computer program will sell it to repay the lender with principal and interest.
Regulators are struggling to keep up with rapid developments as decentralized technologies invade the financial services industry.
Tiiik wants to operate within Australian regulations. He has applied to the Australian Securities and Investments Commission for an Australian Financial Services Wholesale License (AFSL), which he needs before joining a waiting list of 30,000 retail investors.
Tiiik will connect directly to bank accounts, allowing users to easily transfer Australian dollars to the high-yield savings product. It plans to add expense and payment functionality.
“We want to build a Web3 digital wallet, powered by stablecoins. This is a new innovation,” said Tiiik Founder and CEO Erez Rachamim.
“Our clients want a certain return and are willing to take that risk to get it.”
Pending the ASIC, Tiiik operates as an authorized representative of Boutique Capital and onboards approximately 300 sophisticated investors to the platform over the next few months.
Among the prominent investors in his round are Zip co-founder and AFR Rich Lister Larry Diamond; and Alvin Singh and Bosco Tan, co-founders of personal financial management app Pocketbook, which was acquired by Zip.
Zip connections extend beyond investors; another founder of Tiiik is Bernardo Bilotta, who led Zip’s global expansion as senior product manager. Mr Rachamim, who previously launched crowdfunding platform Equitise, said the team was building a global product from Australia.
Other investors include DACM, Global Founders Capital (part of Rocket Internet) and US venture capital investors FinTech Collective and Jump Capital. Plans are underway for a Series A round.
Currently, access to DeFi protocols such as Maker, Aave or Compound based on Ethereum is complex. Users must configure gateway software such as the MetaMask wallet and protect private cryptographic keys. Simple mistakes can lead to big losses; centralized institutions are not there to reset passwords.
Tiiik will provide investors with easy access to complex DeFi protocols. Customers will only need to interface with their fiat currency. In Australia, there will be direct connections to bank accounts through the real-time payment system.
“We obfuscate a nine-step process to make it accessible. We eat the volatility for the client and all the fees,” Rachamim said.
The founders, which also includes Daniel Li, have been developing the idea for 12 months. He received high-level legal advice and hired former Westpac private banking head Tim Smith as “head of growth”.
Regulators are monitoring the space, which was under the spotlight of the U.S. Securities and Exchange Commission this week when it ordered BlockFi to pay a $100 million fine for operating outside U.S. laws. on securities.
Mr. Rachamim hopes to avoid similar problems in Australia, where the federal government has agreed to implement a crypto regulatory regime to protect investors while encouraging DeFi blockchain developers to come to Australia to create new models of cryptocurrency. global financial services.
“We have adapted to Australian regulations, so people have confidence,” he said. “We gave in to a high level of regulation. The regulations are there for a reason. If we go into retail, we will ensure there is integrity.
Tiiik’s revenue model charges customers a withdrawal fee of 50 bps when bringing their crypto back to Australian dollars. He also makes money through a net interest margin concept similar to banks, which he calls a “maintenance fee.” Setting a payout rate at 10% will allow Tiiik to generate revenue if the protocols it invests in pay more.
Anchor on Terra
At least initially, Tiiik will invest user funds in Anchor, a decentralized savings and lending protocol that runs on the Terra blockchain. He plans to diversify into other protocols over time using a strategy known as “yield farming,” where crypto assets are leveraged to generate the highest possible returns.
Anchor offers a stable annual percentage rate of 19.5%, much higher than other DeFi savings protocols such as Aave or Compound, which pay less than 10%.
The higher level of return is possible because, in addition to interest charged to borrowers, it also pays out rewards from borrower collateral, which is used to validate the network under a “consensus mechanism” called “proof participation”. Anchor requires its borrowers to pledge a yield-generating token as collateral for the loan.
Proof of equity returns works the opposite of loan returns. As markets fall, evidence of stake returns increases to prompt network validators to check the network in volatile markets. In the loan market, Anchor’s interest rate drops when capital is available, to encourage people to borrow. When capital is scarce, interest rates are programmed to rise to encourage loan repayment and additional savings.
The model creates several new risks. The first is that the smart contracts governing savings and lending protocols are not working as intended. This could prevent lenders from being repaid as the value of the borrower’s collateral declines. Another is that the UST stablecoin is losing its peg to the US dollar. There is also counterparty risk and regulatory risk.
There is also debate about the sustainability of Anchor’s yield, particularly if more savers flock to the yield and borrowing demand declines.
The Anchor Protocol was highlighted in January after cryptocurrency market prices plummeted in December, reducing demand for DeFi borrowing, which can be used to exchange crypto for real money. This forced its operator, Terraform Labs, to top up the liquidity pool this month.
But believers in UST say that because it is a decentralized stablecoin, which runs purely on algorithms, it could become more popular if regulators crack down on centralized stablecoins such as USDC, operated by Circle, which plans to list on the US public markets.
Similar start-ups are joining the race to provide investors with access to smart contract loans. Another is Block Earner, which also recently raised seed capital.
“We have begun beta testing with a select group of early waitlist customers and are now in the final stages of improving our pre-launch user experience,” Block Earner says on its website.
Tiiik is an example of a trend sometimes referred to as a “crypto mule”: traditional fintech on the front-end and DeFi on the back-end.
“When you look at DeFi and crypto, there are a lot of advancements on the technology side, but the user experience is very poor,” says co-founder Bernardo Bilotta.
“We thought it would be cool to be able to take the traditional user experience that people are familiar with in fintech apps and merge something very complicated like DeFi to deliver DeFi in an understandable way and simplify a complex thing.
“If people are talking about bringing technology to the masses, we need to think about how you lower the barriers of entry for people to use technology.”