Federal Reserve Green Lights AMERIBOR & Blockchain Technology

Each day, the Intercontinental Exchange (ICE) asks banks and financial institutions worldwide to report on their interest rates for short-term loans to borrowers. With this survey of responses, ICE calculates the average of these interest rates and calculates the London Interbank Offered Rate, Libor for short. Libor acts as the global benchmark for interbank, institutional, and consumer loans, and serves as the benchmark for many other interest rates and financial instruments. As the Libor scandal surfaced in 2012, it became evident that Libor rates could be easily manipulated by reporting false interest rates to boost the global “average” to generate extra profits for financial institutions.

As the world’s largest banks each took part in amplifying this scandal and generating crony profits, the international lending industry was left questioning how to create a trustworthy benchmark for short-term loans. Dr. Richard Sandor, creator of AMERIBOR (American Interbank Offered Rate) and the American Financial Exchange, has found the answer to restoring confidence in an interest rate benchmark: Blockchain Technology.

Originating in 2015, AMERIBOR uses the Ethereum blockchain to record the interest rates on loans between small banks, asset managers, and others on a proof-of-authority platform in order to create a true average of the interest rates used between financial institutions. The proof-of-authority (PoA) network allows transactions to be verified by validators, which are software systems that automatically organize transactions into blocks on the Ethereum blockchain, removing the need for human validation. With the PoA AMERIBOR platform, institutions and borrowers perform their transactions over the American Financial Exchange in order to properly record the transaction and the associated interest rate.

In light of the Fed’s proposal for Libor to be phased out of institutions by 2021, Senator Tom Cotton recently questioned Fed Chairman Jerome Powell about the use of AMERIBOR for institutions who believe the benchmark better reflects their cost of funding, according to a Forbes article by Jason Brett.

Fed Chairman Powell responded to Senator Cotton, saying that:

“Market participants should seek to transition away from LIBOR in the manner that is most appropriate given their specific circumstances… AMERIBOR is a reference rate created by the American Financial Exchange based on a cohesive and well-defined market that meets the International Organization of Securities Commission’s (IOSCO) principles for financial benchmarks. While [AMERIBOR] is a fully appropriate rate for the banks that fund themselves through the American Financial Exchange (AFX) or for other similar institutions for whom AMERIBOR may reflect their cost of funding…”

Brett also covers Dr. Sandor’s sentiment on his implementation of blockchain technology within the American Financial Exchange, highlighting his statement on the matter, “We learned a great deal about this new and exciting technology and believe the blockchain has the potential to transform electronic trading and financial markets. AFX is committed to remain in the forefront of this new technology.”

AFX has certainly distinguished itself as a pioneer for the establishment of American trust in blockchain technology through their implementation of blockchain transaction validation within their exchange and AMERIBOR. In an interview with Barron’s, Sandor also states, “If you want to be on time, you’ve got to be early. You have to be anticipatory. The key is to develop an insight into a problem, to build an institution well before there’s a need.”

Because of Sandor’s foresight for the need of a more trustworthy system, his approach, built for small institutions, lenders and borrowers, has the potential to become the go-to financial exchange and interest rate benchmark for even the largest banks and institutions in the United States and across the world. While the AFX network includes 150 banks, broker-dealers, private equity firms, hedge funds, futures commission merchants and money managers, it trades a daily average of $1 billion USD, more than tripling the daily average from April 2018, according to the same Barron’s article. The increased daily trading average assures Sarson Funds that the AFX and AMERIBOR are certainly on track for widespread adoption.

Powell’s support of the institutional use of AMERIBOR to set a standard for lending rates in America is monumental for future blockchain adoption within the American financial system, and is one step closer to the impending universal adoption of the technology. Sarson Funds commends Brett on his covering of this important milestone for the growing blockchain ecosystem.

By Jahon Jamali, CMO

Crypto Lending Platforms Double Their Lending Originations in Q1 2020

Digital assets are entering the lending industry faster than ever before. Within this ever-growing industry, crypto lending pioneers like Celsius Network, Cred, and Genesis Capital are challenging traditional financial institutions with their attractive rates of return, liquidity, as well as their ease of transfer and verification.

By the end of Q4 2019, the crypto lending market reached a monumental lifetime lending originations record of $8 billion, a record that was quickly surpassed as the market shot past $10 billion in mid-May, said Credmark’s Crypto Credit Report.

Just as Sarson Funds reported on the doubling of the crypto hedge fund industry AUM last week, Genesis Capital, a leading crypto lending institution, also doubled their loan origination record this quarter as they marked the $2 billion milestone in loan originations.

Cred meanwhile, founded in 2018 by PayPal veterans Dan Schatt and Lu Hua, offers both a basic 4% annual percentage rate (APR) on Bitcoin, with the option to increase to 8% APR by staking Cred’s utility token, Lend Borrow Asset (LBA).

Celsius Network, another leading crypto lending platform, is also enjoying the growth surge of digital assets. Celsius is revolutionizing the crypto lending industry, providing their investors with 80% of the interest they generate from holding investor coins on the company platform.

According to Forbes writer Leeor Shimron’s article on the growth and potential of the crypto lending industry, centralized finance institutions like Genesis Capital and Celsius are laying an important groundwork for the future of the cryptocurrency ecosystem as they allow their users to receive up to 10% APY on their holdings with the firms, compared to the 0.1% returns investors would receive by holding their savings in traditional financial institutions. The attractive rates that industry pioneers like Genesis and Celsius offer will continue to attract an influx of new users into the crypto network as commercial banks continue offering low rates while the world bounces back from the economic contractions inflicted by COVID-19.

Reports from these companies are showing increased adoption and trust in the cryptocurrency market as a whole beyond Bitcoin. Extending upon Sarson Funds’ article on the findings of The Tokenist regarding increasing rates of crypto acceptance and trust, Genesis Capital’s Head of Institutional Sales Dan Torrey reported, “In January 2019, our loan book was at least 70% Bitcoin. Today, it is less than 50%. That doesn’t mean there isn’t demand to borrow Bitcoin, it just means there has been greater growth for other assets like Ethereum, Ripple, Zcash, and others.” The trends Genesis is witnessing is telling of a widespread industry trend of greater acceptance and trust in the ethos of financial freedom that all cryptocurrencies share.

For more on how the crypto lending industry is revolutionizing the financial world, check out Shimron’s Forbes article on the growth and potential of lending companies, here.

By Jahon Jamali, CMO