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On Crypto Custody and Lending, with Dhruv Bansal@Unchained Capital

In our 2nd episode, we host Dhruv Bansal of Unchained Capital. Dhruv talks about his background in physics and how he got involved in the cryptocurrency space. We discuss in detail custody solutions and on-chain and off-chain lending platforms and the use of data in blockchains. We also venture into Dhruv’s thoughts on Bitcoin and Ethereum. The summary of the podcast can be found below. While the podcast ‘cliff notes’ are fairly detailed, if you have some time, we highly recommend that you listen to our entire recording here. Dhruv does a great job of thinking through and articulating some topical, critical crypto subjects.

Story Behind the Creation of Unchained: In addition to being P2P money and a censorship-resistant store of value, Bitcoin transactions are also an invaluable dataset. Upon looking at the historical dataset of Bitcoin transactions, the conclusion that a majority of Bitcoin investors are long-term holders and around 60% of Bitcoins had not moved in the previous 12 months led to the creation of Unchained Capital. There was a need for a market where Bitcoin holders can leverage their Bitcoin holdings by borrowing against it to meet other financial expenses and the fact that no one else was doing it is where Unchained Capital started. You can refer to Dhruv’s seminal piece on HODL waves here.

Source: https://blog.unchained-capital.com/bitcoin-data-science-pt-1-hodl-waves-7f3501d53f63

Crypto Custody Landscape Right Now: Crypto exchanges are also obligated to store a fraction of their funds in hot wallets to meet the funding and withdrawal requirements of a large scale of users. This is obviously not the safest way to manage private keys because of the risks of external hacks are much higher. The importance of self-custody is criminally underrated currently. Crypto investors are still trying to wrap their heads around Bitcoin and how it works. So, it will take more time for users to figure out the risks of trusting someone else to manage their private keys and then eventually move to a much safer self-custody solution.

Onchain vs. Offchain Lending Solutions: Onchain lending platforms look and sound much cooler than an Offchain software. However, onchain lending comes with its own set of difficulties that we have to deal with. As much as onchain lending and borrowing sounds exciting, they still have not figured out a way to convert your digital borrowings into fiat currencies, which is the need of the hour. Moreover, automating and having all the steps of a borrowing process onchain leads to several unpredictable outcomes because of the irrational nature and constant fluctuations in the fee markets right now. Offchain lending has the benefits of limited interaction with the blockchain as only the final transaction is settled on the blockchain and can offer fiat loans against cryptocurrencies in a regulatory-compliant way.

Dhruv had earlier created this great graphic that captures the essential complexity of crypto. It has since been retweeted and reused multiple times and it would be remiss of us to not include it.

Source: https://blog.unchained-capital.com/blockchain-spectrum-806847e1c575

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