The Optimist Twitter Space - Institutional Lending Protocol Clearpool

In The Optimist’s Twitter Spaces which took place on April 3, 2024, Subli hosted Jakob K from Clearpool to discuss Clearpool, institutional integration, credit in DeFi, and more! Read our notes below to learn more.

Background

Subli (Host) – Founder of The Optimist

Jakob K (Guest) – CEO at Clearpool

Clearpool – a decentralized finance ecosystem incorporating the first-ever permissionless marketplace for unsecured institutional liquidity

Clearpool: Revolutionizing DeFi Lending with Institutional Credit Marketplace

Jakob describes himself as Italian with a business finance education and experience in launching startups in Southeast Asia, leading to IPOs. He transitions to working in FinTech as a commercial director, focusing on alternative lending across the region.
Jakob discusses his entry into crypto during the DeFi summer, sparked by his interest in alternative credit and boring protocols like Compound. He explains that this led him to delve deeper into DeFi, eventually shifting his focus entirely from his previous job.
Jakob talks about Clearpool, a lending platform he co-founded, which addresses the inefficiencies of over-collateralization in traditional DeFi lending protocols. He explains Clearpool’s approach to introducing credit to the DeFi space by creating a credit marketplace for institutions that require KYC and legal agreements.
Jakob explains how Clearpool operates with borrowers like large crypto trading firms and fintechs. He describes their work with entities such as Vinter, Chainstreet, and Flow Traders, focusing on market-neutral strategies and arbitrage opportunities. He talks about their recent ventures into financing fintechs through receivable financing, implementing risk mitigation measures to secure lending opportunities.
Jakob explains that credit primarily means lending which signifies trust in repayment. He explains that credit involves various securities and can be secured or unsecured, distinguishing between loans backed by physical assets, like a house in the case of mortgages, and those that are not.
Jakob explains how Clearpool mitigates lending risks, using an example of a new borrower from the fintech sector involved in payment processing for cryptocurrency purchases. He describes safety measures, including real-time bank account access and monitoring of chargebacks, to ensure funds are used appropriately and risks are managed.
Jakob mentions their partnership with CreDA, a leader in credit risk assessment in crypto, backed by the rating company S&P.
He outlines the real-time risk monitoring processes in place, which include tracking assets across various trading venues to preemptively identify and manage potential risks.

DeFi Resilience, Credit Protocols, and Institutional Adoption

Subli notes that recent crises like the 3AC blowup prompted the adoption of more robust measures in DeFi to anticipate and prevent company failures related to credit.
Jakob reflects on the lessons learned from past lending crises involving companies like 3AC and FTX, which secured large loans based primarily on reputation without substantial financial disclosure.
He says that DeFi platforms generally perform better than centralized lenders due to their inherent transparency, which allows market participants to quickly notice and react to unpaid loans, potentially averting larger financial disasters.
Subli questions what hinders DeFi protocols like dApp from dominating the DeFi TVL landscape despite current over-collateralization trends. He asks about the challenges and plans for overcoming them in under-collateralized or institutional lending.
Jakob acknowledges that credit is tight due to high interest rates making risk-free investments more attractive. He compares unsecured and over-collateralized lending, noting the advantages of the latter in DeFi due to immediate liquidity and trustless operations.
He discusses the challenges faced by credit protocols, especially in integrating non-crypto native companies due to varying KYC standards, and mentions Clearpool’s efforts to provide instant liquidity and integrate within the DeFi ecosystem despite these hurdles. He remains optimistic about the future growth of private credit platforms in DeFi.
Subli comments that the high yield on stablecoins suggests a lack of sufficient liquidity in the crypto space, making DeFi not yet mature enough to attract liquidity from traditional finance..
Subli notes recent developments, including BlackRock’s launch of a digital fund and Clearpool’s listing in the real-world asset category. He asks about BlackRock’s digital fund and where Clearpool fits into this narrative.
Jakob says that BlackRock’s introduction of a tokenized treasury dollar is significant, primarily because it adds credibility to the DeFi industry and may encourage more institutional players to enter the market. He highlights that the product itself isn’t novel but its institutional backing is.
Jakob explains that RWAs are often misunderstood and encompass more than just real estate or collectibles.
He says that RWAs can include tangible assets like real estate and non-tangible assets such as treasuries or loans with actual companies.
Jakob says that stablecoins are the most adopted form of RWA, representing a U.S. dollar backed by the same.

Clearpool: Innovating Decentralized Finance Intermediation & Governance

Subli says that he understands the role of Clearpool as an intermediary in decentralized finance, comparing it to his personal experience of securing a home loan through a traditional finance intermediary.
He recognizes Clearpool as a bridge between lenders and borrowers, influenced by the user’s credit profile, and not exactly a bank but an intermediary.
Jakob explains that the product originally known as the permissionless pool will be rebranded to a dynamic pool.
This product features a dynamic interest rate curve influenced by the utilization rate within the pool, similar to the model used by Compound.
The interest rates fluctuate based on the activity of lenders and borrowers, aiming to maintain liquidity and encourage prompt repayments.
Jakob discusses the credit vault product, which offers customizable conditions for borrowers, such as setting their interest rates and repayment schedules. This flexibility makes it suitable for a variety of borrowers, including trading firms and fintech companies, allowing for more tailored financial solutions based on the borrower’s needs.
Jakob talks about Clearpool Prime, a platform designed for large institutional clients that require thorough KYC processes and prefer transactions that are still on-chain but more discreet.
This platform caters to significant players like Jane Street, who need customized lending conditions and privacy in their transactions.
Subli remarks on the preference of larger, non-crypto-native players for fixed interest rates to better predict and manage their financial costs against potential returns. He says that this preference aligns with their need for stability in financial planning.
Jakob confirms Subli’s understanding of the importance of fixed interest rates and sticky liquidity, which are crucial for long-term financial planning and stability in institutional lending.
Jakob explains the Oracle system on Clearpool, where trusted institutions act as Oracles, voting on interest rates and other crucial parameters. This governance system ensures equilibrium in the platform’s interest rates and involves stakeholders through a staking system where token holders delegate voting rights to Oracles.
Subli asks about the role of Oracles in setting borrowing interest rates, understanding that Oracles vote on these rates while the protocol sets the lending rate curve.
Jakob says that Oracles also act as takers, sometimes delegating voting power to themselves, which includes some investors.

Clearpool’s Optimism Deployment: Grant Impact, Scaling Success, and Institutional Adoption

Subli mentions Clearpool deployment on Optimism, recalling a grant of 150,000 $OP tokens received last year, and asks how successful the grant usage was in attracting users and institutions.
Jakob explains that the grant’s timing coincided with a favorable rise in the $OP token value, enhancing the grant’s financial impact. He highlights the successful scaling of Clearpool on Optimism to $20 million and the launch of Clearpool Prime, reaching around $10 million at its peak.
Jakob praises Optimism for its welcoming environment for both borrowers and lenders and its robustness as a layer-2 solution, noting its integration with various exchanges and services like Fireblocks and Circle. He says that the launch on Optimism has made their platform more retail-friendly, crediting the lower operational costs compared to Ethereum.
Subli says that the campaign launched on Optimism was successful, mentioning a significant amount of funds transacted since Optimism’s inception, which spans nearly two years.
He questions whether there are any significant barriers preventing institutions from adopting Layer 2 solutions, despite their centralized aspects in transaction approval and fund transfers.
Jakob agrees that institutions generally do not mind the transaction fees on the Ethereum mainnet, indicating a preference for it.
He explains that chains like Optimism, Arbitrum, and Polygon are becoming viable options for institutional players due to their liquidity and support from centralized services like custodians and exchanges.
He says that smaller chains struggle without native stablecoins and support from major platforms like Binance and Circle.
Jakob discusses strategies to attract more institutional clients to Clearpool, including the introduction of new products and lending opportunities. He points out the current imbalance between the availability of borrowers and lenders, stressing the development of products like short-term receivable financing which offer real yields from non-crypto exposures.
Jakob mentions plans to provide diversified lending opportunities that could appeal to less experienced investors similar to investing in an ETF.
Subli asks if there are plans to integrate with the Base chain following the Coinbase hype.
Jakob says that they are actively considering it and are in discussions with the Coinbase team, noting Base’s unique value proposition due to its direct interaction capabilities for Coinbase users.

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Show Information

Medium: Twitter (Audio)
Show: The Optimist Twitter Space
Show Title: Institutional Lending Protocol w/ CLEARPOOL
Show Date: April 3, 2024