Digital Asset Backed Lending – Interest Income for Your Crypto Investment

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Digital asset backed lending has gained substantial popularity in the past two years. On one hand, it provides easy access to financing for digital asset borrowers and, on the other, new opportunities for substantial fixed-income type returns in the world of digital asset investment. Tesseract connects the two sides of crypto lending and offers investors easy access to a secure investment product – a convenient way to tap into the profitable and fast-developing crypto lending market and gain interest income for your crypto investment.

Tesseract Investment was founded in 2017 and is a global leader in digital asset backed lending as well as in proprietary technology related to digital asset lending. We specialise in providing our customers access to the industry’s most cutting-edge financial services and allowing you to make the most out of the growing potential in digital assets. Tesseract is backed by several leading names in Nordic asset management, such as Taaleri, Estlander & Partners and Icebreaker VC, all as its equity investors.

Tesseract has partnered with Coinmotion in digital asset lending since 2018 to provide the customers of Coinmotion some of the latest technological solutions in the field. The partnership has brought the benefits of Tesseract’s pioneering instruments to Finnish cryptocurrency space more readily available than ever before. Through Tesseract services, the customers of Coinmotion have a privileged access to the latest emerging opportunities in digital asset backed finance.

How Tesseract works for You

Our mission is to ensure that your investment is protected against market price shocks and allocated to the most reputable borrowers in the crypto lending market.

We connect Coinmotion investors to a pool of diversified potential borrowers from a wide range of industries and institutions working in digital asset markets. In underwriting loans to digital asset borrowers, we take every precaution to ascertain their eligibility, financial standing and relevant track record.

Our 24/7 collateral/loan value monitoring as well various risk-management procedures (e.g. margin call) provides further protection for your investment against market shocks and digital asset price volatility.

How Tesseract’s product functions

  • An investor invests cryptocurrency to Tesseract’s credit vehicle via Coinmotion’s web application or Private Banking service.

  • These invested funds are pooled together at Coinmotion and allocated to Tesseract.

  • When conditions for borrowing are met, the funds are extended by Tesseract as loans to borrowers in the crypto market. To obtain a loan, a borrower first provides Tesseract a collateral in digital assets.

Overcollateralization means that collateral value in all market situations exceeds the value of the borrowed capital – the collateral acts as a protection against borrower default and market shocks, providing security for the investor.  Instead of the investor, the borrower bears the risks associated with high price fluctuations in the crypto market. Tesseract undertakes real-time 24/7 monitoring to ensure sufficient collateral values.

For their investment, an investor accrues interest for the borrowed cryptocurrency on a daily basis, until the borrowed funds are fully or partially withdrawn. Tesseract re-negotiates rates on a regular basis to provide the highest possible return on your investment.

Advantages of investing in lending via Tesseract’s proprietary product

  • High yield. Interest rates offered by Tesseract’s investment products achieve constantly higher returns over conventional collateralized debt obligations.

  • Insignificant capital risks. Overcollateralization acts as your safeguard against market shocks in crypto (collateral against the loan) prices: the overcollateralization mechanism works so that the risks associated with crypto’s high volatility are born mainly by the borrower and not the lender (e.g. Coinmotion customers). Investing in Tesseract’s digital asset backed lending products allows investors to benefit from the high returns of crypto markets without taking on much of the associated risks.

  • Diminished security risks. Much like a traditional bank, Tesseract only deals with reputable institutional digital asset borrowers backed by proven track records and sound balance sheets. Stringent anti-money laundering measures are also put into place and investors’ capital is guarded by state-of-the-art security set up. Tesseract’s mission is to give our customers peace of mind over their investments.

  • Portfolio diversification. Crypto markets offer a convenient and effective way of diversifying one’s portfolio. Akin to investing in gold, digital assets have historically had a low correlation with other indexes (e.g. equity and bonds) and as such form a natural buffer against volatility in conventional asset markets. 

  • Regulated and supervised operations. Tesseract’s business operations and products in digital assets are licensed by the Finnish Financial Supervisory Authority (Finanssivalvonta). Tesseract adheres to the highest standards of the EU’s 5th Anti-Money Laundering Directive and aims to promote trust and transparency in the digital asset industry.

  • Growth in crypto lending took a notable leap forward in 2020. According to Credmark’s Crypto Credit Report, the amounts of active debt and collateral in the industry increased by 58% and 95%, respectively, in Q3 alone. Interest payments generated by the industry have increased over 250%, with DeFi (decentralized finance) experiencing by far the fastest growth in returns.
Institutional digital asset backed lending is booming with ample market demand
  • Return on investment has been the main driver of growth in crypto credit. Instead of keeping their coins in liquid form in a zero-interest paying storage account or exchange, holders of digital assets now have a way of earning a high and secure yield on their investments through the crypto lending market. Similarly, as central banks are poised to keep general interest rates low, crypto credit offers higher rates of return many times over any conventional low-risk method of investing.

  • Development of the crypto lending market has been similarly beneficial to borrowers. New technology removes most of the friction associated with underwriting conventional credit, since the collateralisation is done automatically; the value of the borrower’s collateral is constantly known on the 24/7 global crypto market. Access to frictionless credit has permitted bullish borrowers to make most of the underlying crypto assets’ price hikes in 2020.

  • Legitimisation of crypto assets in the eyes of well-known investors has become commonplace. This year, major institutional investors like Vanguard Group and the Norwegian Oil Fund announced that they now include holdings of cryptocurrency related companies in their portfolios. PayPal now also supports bitcoin and crypto buying, holding and selling on their direct payment platform.

  • Billionaire hedge fund manager Paul Tudor Jones on Bitcoin (22.10.2020):

I like bitcoin even more now than I did (in May 2020). I think we are in the first inning of bitcoin and it’s got a long way to go. (…) Bitcoin has this enormous contingence of really, really smart and sophisticated people who believe in it. It’s like investing with Steve Jobs and Apple or investing in Google early.”

Sources:

The Crypto Credit Report (Credmark, Q3 2020)

“Exploding Past $10 Billion, Interest Income And Lending Are Bitcoin’s First Killer Apps” (Forbes, 26.5.2020)

 “Paul Tudor Jones says he likes bitcoin even more now, rally still in the ‘first inning’” (CNBC, 22.10.2020)

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