I recently came across Hodlnaut, which is a Singaporean-based company that accepts cryptocurrencies and pays out interest. Unlike exchanges like Coinbase or Coinhako, they do not allow investors to buy or sell cryptocurrencies. Rather, they propose an interesting concept that is only recently made available for cryptocurrencies, best explained in the infographic below.
From what I understand, the way to think about this is to refer to the traditional parallel, which is the concept of fixed deposit with banks: Leave something of value with the bank/company for a lock-in period and get some returns because the bank/company has borrowed something from you.
The scary thing may be that we have not seen such high returns of 10% with fixed deposits in recent times. In fact, because interest rates have been dropping, fixed deposits rates have followed suit, and current rates across most major banks are less than 1%.
So it is only natural to ask questions about how Holdnaut can keep this sustainable. I found some information from their FAQ page which helped to shed some light.
But I wanted some more details, so I also wrote in to their staff via email for further clarification, and this was the explanation they offered:
Our interest rates have stayed the same ever since we started in April 2019. The only change is the increase in our stablecoin rates from 8.3% APY to 10.5% APY. However, the crypto industry is always in flux and unpredictable. There will come a time in the future where we have to adapt, but that time is not now. We will keep doing our best to keep rates as competitive and sustainable as we can with our consumers in mind!
We are able to offer such high interest because we lend out the assets to vetted and established institutions. These loans are overcollaterized by 130% and in the unlikely event the borrower defaults, we will use the collateral to repurchase lost funds and still be operating- Additionally, we lend out the assets to a small number of audited, venture-capital-backed DeFi Protocols like Compound Finance. We take a small profit from the interest gained and pass the rest to our users. Without compromising on safety, we offer optional insurance with Nexus Mutual. As of 1:00PM, 12 July 2021, the cover is up to US$19.5m. We also hold sufficient company equity funds to cover funds in the unlikely event of loss of funds from events like hacks.Hodlnaut staff
I guess the takeaway is that we are getting these higher returns because of the risks involved when dealing at such nascent stages of development. Then of course, given how new cryptocurrencies are to the general public, and even newer for such businesses involving cryptocurrencies, one would be forgiven if there were also questions about the nature of the risks involved with depositing your cryptocurrencies with them and whether this might be a scam. Again the FAQ page has some responses.
For further reassurance, they also shared that Holdnaut make an effort to be as transparent as possible to their users by conducting Financial Attestations of Assets Under Management quarterly, with Crowe Singapore. On the last FA, Crowe Singapore has verified that we have US$234 AUM.
And while they do not have a definite timeline on when it will be completed, they have shared that they are constantly in touch with MAS compliance officers to make sure that their business activities are in line with the regulations set out. Additionally, as they are applying for a Major Payment Institution license, to be even eligible for application, they have to meet certain criteria that assesses their legitimacy.
For those who are still unsure but have some spare cryptocurrencies and want to give this a try, do sign up using my affiliate link if you like what I have shared. It will entitle me to some bonus for my effort in sharing more about Hodlnaut on my blog if you have decided to deposit some of your cryptocurrencies with them. You will also receive a US$20 Signup bonus after making an initial deposit equivalent of US$1,000 on any of their supported assets. But as with any investment vehicle, please do your own due diligence and assess whether you are willing to give this a try based on your own portfolio.
Apart from creating an account, I haven’t actually deposited any funds with the companies. That’s more because I haven’t had the time to assess my cryptocurrencies allocation yet. Once I come round to that, I will be assessing this option against other high-yield farming opportunities as well as make an effort to learn more about the latter too. Personally, I’d say that there is some value in putting some funds there, just to get a better understanding of how it works and then slowly add more once you are comfortable with the whole setup.
Let me know if there’s anything else I should also cover about Hodlnaut. I can always drop them an email to find out more!
Disclaimer: Other than the additional clarifications provided by Hodlnaut staff, this article was written entirely by me. Infographics were provided by Holdnaut.