S’pore startup Hodlnaut on crypto investment risks, to launch retail loans and fiat deposits

Founded in 2019, Singapore startup Hodlnaut has become one of the world’s leading crypto lending platforms. With over 10,000 users, the platform offers interest rates of up to 13.86 per cent across eight different cryptocurrencies.

In April this year, Hodlnaut announced support for Terra (LUNA) and TerraUSD (UST), for both open-term and fixed-term deposits.

The price movements of the two assets since then has illustrated the risks which accompany crypto investments at present.

High interest rates and associated risks

In an interview with Vulcan Post conducted in early May, Hodlnaut’s Head of Growth, Sten Ivan shed light on the volatility of crypto assets.

“Crypto is always very volatile and even we can’t tell if the high-interest rates will continue or whether they’re sustainable,” he says.

Just a week later, we’re seeing this volatility in action. Hodlnaut’s two newly-introduced assets — LUNA and UST — have lost over 50 per cent of their value in the past week.

The fall of UST is particularly surprising. Being a stablecoin, its value is meant to be pegged to the US dollar. Yet, within 12 hours, it has seen a collapse from just over 90 cents to below 50 cents.

“There are many different types of stablecoins that are backed by varying companies,” explains Ivan. “The risk involved depends on how trustworthy the company is and also what exactly the stablecoins are backed by.” 

For example, StraitsX’s XSGD stablecoin is backed by an equivalent amount of Singapore dollars held and safeguarded in a local bank. This means that the entire supply of XSGD can readily be converted into SGD, helping the coin to retain its value.

Not all stablecoins are backed by such liquid assets though. An issuing company may instead hold bonds, commodities or even other cryptocurrencies. This makes the value of the stablecoins more susceptible to change, especially in the event of a mass sell-off.

Crypto market crash

As the market crashes, blue-chip cryptocurrencies such as Bitcoin and Ethereum haven’t been spared either. Their respective prices have fallen by more than 25 per cent.

Cryptocurrency is much more volatile than traditional asset classes. Its most popular digital coin, Bitcoin, has a volatility of about 70 per cent on an annual basis, compared to the S&P 500 index, which has an annualised volatility of about 15 per cent.

Even though Bitcoin is perceived as a relatively safe investment in the crypto space, it is still subject to unpredictable swings as we’re witnessing right now.

“Such volatility is not suitable for everybody and it is integral that new users of crypto understand their risk tolerance,” says Ivan.

The future of Hodlnaut

Hodlnaut earns income by lending crypto to established financial institutions and reliable decentralised protocols. This is how it’s able to provide interest to those who deposit their coins on the platform.

Each month, the platform reviews and amends its interest rates, taking a variety of factors into consideration.

“Interest rates are evaluated based on market demand and our earnings from the previous month,” explains Ivan. “While we aim to keep the interest rate stable, it is subject to change.”

It remains to be seen how the market crash will affect Hodlnaut’s interest rates. Above all, the company places a priority on being sustainable.

“Our company follows sound risk management and sustainability practices and policies. If rates have to be low, we will adjust accordingly for the company to stay sustainable,” says Ivan.

Hodlnaut has big plans coming up for the year ahead as well. So far, users have been able to fund loans and soon, they’ll be able to apply for them too.

“We will be launching retail lending, allowing our users to opt for retail loans on our platform,” shares Ivan.

In addition, Hodlnaut will be launching fiat-on-ramp, which will allow users to deposit SGD or USD directly to the platform. This will remove the need to convert the funds to crypto beforehand, via a third-party exchange.

The future of crypto

Earlier this year, Hodlnaut received in-principle approval from the Monetary Authority of Singapore to offer Digital Payment Token (DPT) services in Singapore.

Ivan believes that this regulatory approach is allowing the country to emerge as a crypto hub.

“We believe that the regulatory landscape surrounding crypto in Singapore is ideal for startups to operate, while ensuring they are compliant with the laws to offer safe and regulated products to users,” he says.

Through the acceptance of blockchain technology, the world of finance is readily evolving.

“We are paving a new way where traditional and decentralised finance comes together. It’s an entirely new arena, which gives all of us the opportunity to see many new, never-seen-before products in the market. That’s what really excites me the most about the future of crypto,” he sums up.

Featured Image Credit: Hodlnaut