Crypto-Native Bank

VeradiVerdict - Issue #124

Earlier this year, Pantera led the seed round into Vauld, a crypto-native bank targeting Asia Pacific, with top tier investors Coinbase Ventures, CMT Digital, Gumi Cryptos Capital, LuneX Ventures, Robert Leshnar (CEO of Compound Finance) and Tarun Chitra’s Robot Ventures, and CoinShares. With interest-bearing accounts being such a need in this macro environment, Vauld provides a consumer and developer friendly product to access yield and financial services, utilizing the benefits of cryptocurrencies and blockchains.

  • Nearly a fifth of the world’s population lacks access to a bank account. Several solutions have been proposed to solve the inefficiencies and inequities of banking, like tech-forward neobanks and decentralized finance protocols, but these either are still limited by poor financial infrastructure for fiat holdings or by mainstream unfamiliarity with crypto. 

  • Vauld is a crypto-native bank that gives its users access to several banking functions (holding assets, trading, accessing credit, making payments, etc.) in various forms of money, like different international currencies and digital tokens. Vauld intends to span across all banking networks, currencies, and blockchains to enable users to access and engage with capital in any form.

  • The core of Vauld’s infrastructure is its centralized liquidity pool, where users can supply assets in the form of fiat, stablecoins, or other tokens. These users can earn interest in different cryptocurrencies, with up to 12% APY on some assets. This liquidity is then partitioned into funds for lending and float for trading. Funds for lending are lent out to borrowers for risk-free loans that are collateralized by at least 150% and are generally repaid within 30 days; borrowers can take out loans and collateralize in multiple forms of capital, including fiat, stocks/ETFs, and tokens. The float for trading is held on Vauld’s exchange partner, Binance, where it is used to facilitate trades made by Vauld clients. Vauld plans to expand its services to include rails and on-ramps for various international currencies, solutions for international payments, access to index funds and SIPs, credit cards, and more.

  • Vauld is particularly well-suited to capture the crypto interest of the Indian market, which has been restricted by a two-year ban on crypto trading that was overturned in early 2020. From 2019 to 2020, daily crypto trading volume in India grew five-fold to $100M. Vauld’s sophisticated infrastructure and support for INR holdings makes it a strong candidate to capture Indian consumers with fiat and crypto holdings. Crypto in India is also broadly capturing more interest, as everyday consumers lose confidence in a banking sector that fails often and poor monetary policies around fiat. 

  • Still, Vauld’s success in the Indian market and crypto development in the country generally may be compromised by the efforts of the government to re-introduce a ban on crypto investment. Such a ban would pave the way for the Reserve Bank of India to issue a centralized digital rupee but would also limit how the Indian economy develops as decentralized finance captures more of the global financial sphere. 

  • Ultimately, Vauld presents a user-first approach to managing digital and traditional assets that makes it easier than ever for users to lend and borrow, trade, and pay with fiat and crypto. Its support across different payment rails, currencies, and asset types makes handling money of any form a seamless, low-cost experience. 

Banking the Unbanked

Across the globe, nearly 1.7 billion adults, or approximately 22% of the world’s population, lacks consistent access to a financial institution like a bank or credit union. Traditional banking primarily targets Western clients and often have process inefficiencies and barriers, like KYC policies and complex money transfer routes, which make it difficult for millions to access capital. 

The past decade has seen several approaches to expand financial access beyond the scope of banks in the status quo, including neobanks, which are tech-forward banks that often offer more competitive lending products, and decentralized finance (DeFi) protocols, which leverage digital assets and decentralized computing to enable lending. Most centralized approaches still rely on the same infrastructure that powers traditional banks, which creates barriers in terms of how and where money can be sent, the financial products that can be offered, etc. Other approaches, like DeFi protocols, have demonstrated the power of decentralized lending, but have failed to see significant mainstream adoption, likely due to the unfamiliarity of the space and perceived technical complexity. 

There is a strong case for how cryptocurrency can reinvent the paradigm of how money is held and transferred, relieving many of the inefficiencies and inequities of the current banking system. To get mainstream adoption, however, it also equally important to present these decentralized financial institutions in a way that is familiar and accessible to the user.

A Crypto-Native Bank

Vauld is a crypto-native bank that enables its users to perform classic banking functions, like holding and sending money, across multiple types of assets and capital (fiat, stocks, digital assets, tokens, etc.). Vauld intends to span across all international currencies, and blockchains to enable its users to seamlessly hold and transfer money in any form they want. 

Vauld’s key differentiator from other neobanks or other crypto-based approaches to banking is that it spans across all banking networks. Most neobanks exclusively operate in fiat or other traditional financial assets, and most decentralized protocols have limited on- and off-ramps for fiat USD, and even less so for other currencies. The inability to easily convert between money types creates significant friction in the financial system, preventing widespread global adoption. Vauld easily powers money conversions, allowing it to access several use cases within the financial sphere. 

Moreover, unlike most neobanks and centralized approaches to lending, Vauld natively holds and distributes assets in the form of various cryptocurrencies. Lenders to the protocol can earn interest in the form of tokens, and borrowers can collateralize loans for tokens or fiats using other digital assets. This enables users to use their crypto holdings for broader financial use cases than investment and hodling. It also allows Vauld to access differentiated financial products, such as algorithmic supply-rebasing stable tokens, which may have lower risks of default or volatility. 

How It Works

Vauld’s functionalities are organized around a centralized liquidity pool, where users of the bank can “lend” or hold assets. Users can deposit in fiat, stablecoins, or even tokens like Bitcoin and Ethereum, and earn stablecoins or tokens like XRP in interest. The liquidity pool today contains over 50M USD in assets, in the form of various tokens and fiat currencies, like USD and INR. 

This liquidity is then distributed into two branches: funds allocated for lending and float for trading. Borrowers can take loans from the funds allocated for lending, in generally risk-free loans that are collateralized by at least 150% and are usually repaid in 30 days. These loans can be collateralized in different forms of assets, including crypto holdings, stocks/ETFs, and fiat. Additionally, because Vauld holds several forms of money, it can offer competitive lending products, like 12% APY to lenders on certain assets, and 1% spread to borrowers on certain assets.

The float for trading is held on Vauld’s exchange partner Binance, where it is used to facilitate order book trades. Users can trade various assets using INR, USD, and crypto holdings.

How Vauld Works (source)

Vauld also has APIs to allow users to connect to multiple crypto wallets with different tokens, and use them for lending and borrowing. It also supports several fiat rails for USD, INR, and other currencies that can help enterprises integrate fiat/crypto payments into their infrastructure and build on-ramps for different forms of money holdings (bank accounts, UPI, cash, etc.). 

In the future, Vauld plans to deliver functionality around cross-token payments, margin crypto trading with up to 5x leverage, debit and credit cards, and bank accounts for personal holdings. It also plans to expand to multiple international currencies like GBP, EUR, SGD, and others. 

The Case for Asia Pacific

One of Vauld’s primary target markets is South and South East Asia with a large presence of users in India, Singapore and Hong Kong. APAC Financial hubs, Singapore and Hong Kong, have embraced Cryptocurrencies as any other security asset with an aim to strengthen the trading market and attract institutional investment. Licensing laws have placed to obtain regulatory approval before trading is permitted. 

In May of last year, a ban on crypto transactions was overturned by the Supreme Court of India, which created an explosion in Indian crypto interest. Daily trading volume from Indian users grew 5x from $20M in 2019 to $100M in 2020. Still, much of the market is underserved due to lack of easy on-ramps, support for separate tokens, etc. 

However, India is a demographically promising candidate for crypto and digital assets; corporations like Reliance Jio have brought the Internet nearly 400 million Indians, which gives them touch points to various crypto services, even without consistent bank access. The Indian diaspora is also massive, and transfers about $80B in remittances annually; banking natively in crypto can make remittances faster and less costly. 

Vauld intends to launch the first crypto credit and debit cards in India, where users can settle liabilities in fiat or cryptocurrency. They also plan to build payment rails for on-ramps, exchanges, and cross-border transfers for fiat in the US, EU, UK, Singapore, Japan, Australia, Hong Kong, and more. This enables users globally to easily access fiat and crypto holdings, as well as more sophisticated assets like SIPs, index funds, and more. 

Vauld’s sophisticated infrastructure to handle crypto and traditional financial holdings makes it a compelling service for crypto enthusiasts; its wide set of on-ramps and products for INR and USD make it especially easy for the APAC market to access the crypto space. 

Still, Vauld’s ability to capture the Indian market is contingent on the government’s stance on regulation. The country’s Finance Ministry recently announced that it is looking to ban cryptocurrency investment altogether, giving crypto holders three to six months to liquidate their assets. The ban also sets the government up to issue a digital version of the Indian rupee through the RBI. Such a ban would not only threaten Vauld’s success in the Indian market, but the country’s economic and technological development as crypto captures more of the global financial sphere in the coming years. 

Final Thoughts

The institutional inefficiencies of traditional banking and unfamiliarity and complexity of digital assets severely limit how individuals across the globe hold traditional and crypto financial assets. Most approaches to expand financial access focus on specific problems, like the user experience of banking, interest rates, or enabling crypto holdings, but few solutions fail to capture the full financial experience. As crypto becomes more mainstream, it’s more necessary than ever to have easy-to-use platforms for holding both traditional and digital financial assets, and to easily lend/borrow them, trade them, and send them across the globe. 

Vauld is an incredibly promising approach to giving everyday users seamless access to fiat and digital financial assets. As a crypto native bank, Vauld can support lending and borrowing, asset trading, asset holding, and credit and payments in various forms of money, from different international fiats to different cryptocurrencies. Vauld’s reach across multiple banking networks, blockchains, and currencies uniquely positions it to be one of the easiest financial solutions for those with both fiat and crypto holdings. The bank is also well-positioned to capture the historically underserved crypto market in India, given its diverse array of INR fiat on-ramps and financial products that make it a compelling partner for consumers. Barring further regulation by the country’s government, the rising Indian interest in crypto can contribute to Vauld’s growth in the South and Southeast Asian market. Ultimately, Vauld is one of the most promising approaches to reinventing how the world banks, by simplifying the experience of handling different forms of capital. 

- Paul V

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ABOUT ME

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-auction ICOs, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.