Maple Finance, a marketplace that connects institutional borrowers and lenders with accredited investors, has unveiled a new direct lending arm, Maple Direct.

CEO Sidney Powell says the company’s new lending arm will fill a hole for a Web3 industry that previously saw some $55B dollars loaned from now-defunct centralized lenders like Genesis and BlockFi.

“You know, it’s pretty clear that banks don’t really want to deal with Web3 companies,” Powell told The Defiant. He added, “And so the Web3 economy has to spawn its own solution for that, and that is one of the things we’re trying to provide here.”

Maple Direct is set to launch in July and will focus on debt deals for Web3 businesses that need a compliant financing solution. The loan offering provides an answer for large organizations previously unable to secure loans collateralized by digital asset holdings, due to factors such as regulatory requirements or risk tolerance.

The Maple Direct lending pool offers transparency by allowing lenders to see the ratio of overcollateralization to loan values and measure subsequent risks, as opposed to operating opaquely.

The lending pool on Maple Direct is designed to meet the liquidity and risk requirements of various capital allocators, such as crypto funds, decentralized autonomous organizations (DAOs), venture capitalists, high net-worth individuals, yield aggregators, and family offices, according to Maple. As such, all lenders must pass Know-Your-Customer (KYC) checks prior to using the platform.

Secured Lending Market

Until now, Maple has focused on unsecured lending to creditworthy institutional borrowers. Despite that, Powell said the pools performed relatively well in terms of credit defaults, outperforming peers in the centralized finance (CeFi) market.

However, given current market sentiment, relying solely on unsecured products poses challenges in attracting sufficient capital from lenders.

“So, what we’re doing is offering over-collateralized loans, and that will be managed via an integration with a custodian,” said Powellm adding, “We’ll have the transparency of the loans being on-chain, which I think is a really important evolution.”

By partnering with a third-party custodian, said Powell, Maple can use the collateral on other chains, such as Bitcoin, or custodial staked ETH. “It just gives us a wider set of options on the collateral that we can take to manage risk, and I think the market has kind of indicated it’s preferring an over-collateralized option, at least until risk appetite picks up.”

Reducing Counterparty Risk

In terms of competition in the unsecured lending space, Powell says competitors were “decimated” in the bear market, referring to the exit of high-profile Web3 lenders like Gemini and BlockFi, which became embroiled in contagion from failed crypto exchange FTX.

Major DeFi money markets such as Aave or Compound face potential compliance restrictions around the use of non-KYC funds, making them off-limits to institutional players, according to Powell. Sophisticated investors may prefer to hold collateral in native BTC or another asset directly or through a validator as opposed to a wrapped facsimile.

Another crucial factor for the Web3 lending market, according to Powell, is building transparency into the platform. He pointed to the ongoing liquidation of Three Arrows Capital (3AC) as an example.

“We want to avoid a situation where 3AC is one of your borrowers, and they were actually half the pool, and you never realized. And you also didn’t know that they hadn’t made their loan repayments on time recently,” said Powell.

When institutions have clarity on loan positions across a given pool, said Powell, it reduces counterparty risk. “It should be very clear [to] anyone going into that pool, the kind of risk they’re taking and that they’re getting a higher interest rate to compensate them for that,” he said.