SOLVING BITCOIN’S ‘PET ROCK PROBLEM’
We’ve teamed up with Ledn to interrupt your regularly scheduled Sunday recap, because Bitcoin has a problem.
(And we need to talk about it.)
Specifically, Bitcoin has a ‘Pet Rock Problem’.
If you don’t know what a Pet Rock is, it was a widely popular collectible toy made in the mid 70’s that was…
Well, just a rock…in a box…on some shredded cardboard.
Its value was based purely on perception and branding. It didn’t do anything. And once you bought it, you just kind of…held on to it.
Feels eerily familiar, no?
(Please, please, stop your booing!)
I’m not saying Bitcoin is a Pet Rock…but you can’t deny that it has many similarities.
Here’s the problem in a nutshell:
Bitcoin is pitched as being ‘finite digital property’ that you buy, hold and never sell. 👇
Now, buying and holding scarce property isn’t anything new, nor is it a bad way to invest – hell, just look at real estate.
But the difference between Bitcoin and real estate is there’s a well established system built around it that allows you to put your stored capital to work, via loans.
The more work your capital can do for you → the more incentive there is to acquire it → the larger the market becomes.
And it’s not like Bitcoin doesn’t have its fair share of lending networks…
But they’re still in their infancy – meaning they are complex, often hard to access, and exist within a regulatory ‘grey area’.
(That last bit is important.)
If we want institutional money to flow into Bitcoin at a higher rate, we’re going to need products that are absolutely bulletproof, from a regulatory standpoint (and lots of them!).
The US-based Bitcoin ETFs were a MASSIVE first step towards making Bitcoin a global mega asset – holding close to $100B of TradFi investment dollars as of this writing. 👇
…but that only solved the ‘buy and hold’ problem for big money.
These guys like to put their money to work – and for that, we’re going to need robust, TradFi friendly lending infrastructure to be built around Bitcoin.
So let’s take a look at the two options on hand: DeFi lending, and CeFi lending.
1/ DeFi Lending
Right now, you can login to Coinbase and bridge your $BTC over to the Ethereum network (as a ‘wrapped token’ called $cbBTC) and take loans out against those holdings on Base (via Morpho lending).
In doing so, you have full custody of your $cbBTC the moment it’s bridged to your Base wallet – and full custody of any loaned tokens after that.
And it’s not just Coinbase/Morpho offering these kinds of services – you can take out loans against wrapped Bitcoin on Aave, Compound, and Curve!
Meanwhile, the whole process is completely bankless and permissionless!
That’s the dream!
…right?
For some, maybe. But for others (think: institutions and everyday retail investors), it’s more of a ‘waking nightmare’ type scenario.
No regulatory clarity, no third-party security, no customer service hotline to call – and all wrapped up in a web of hard-to-navigate interfaces?
Nope. We’re going to need something different.
2/ CeFi
Take a minute to put yourself in the mindset of the average investor…
Maybe they’re a retail client, maybe they work for a larger financial institution – point is: they want a simple solution that doesn't require onchain analysis to verify trust.
Now, with your new perspective, let’s look at what we’ve seen take place over the past four years or so…
👉 FTX collapsed after they were playing grab-ass with customers’ funds
👉 The SEC went after a range of crypto companies that existed within a regulatory ‘grey area’
👉 A wide range of cross-chain bridge hacks took place, totalling an estimated $2B
The message being sent to the risk-averse TradFi type? Crypto is dangerous.
Which is why if/when they decide to enter the crypto space, they’re going to want to see:
- Proof Of Reserves
- Clear regulatory approval
- Strong third party security measures
Not to mention a flawless record of uninterrupted client withdrawals, global access, as well as strict due diligence and risk management policies – with a long proven record.
Aka: they want to be able to lend against decentralized assets (like $BTC), on robust centralized platforms.
…right, so – can we all agree? CeFi is obviously going to win the hearts and minds of TradFi investors when it comes to leveraging their Bitcoin holdings?
Good.
Now, the goal here isn’t to have a single lender ruling the market. We want to see a wide range of reliable options available to users – because that’s the sign of a healthy market!
(E.g. When you’re looking to take a loan out against your home, it’s not like there’s one obvious lender to go with – there’s an entire industry that’s teeming with reliable options.)
The closer we get to being ‘spoilt for choice’ across both decentralized lending options, and centralized institution-backed lenders – the healthier the overall crypto market will become.
So what standards need to be met in order to create a trusted/healthy centralized crypto lending market?
Here’s the bar being set by Ledn, the industry’s leading Bitcoin lender...
👉 High trust – proof of reserves & regulatory approval come as standard.
👉 Proven track record – Ledn survived the 2022 FTX crisis (when most others didn't) and have never lost a single Sat of client assets.
👉 Silky smooth product – Bitcoin loans are usually funded in 18 hours (or less), allowing users to leverage their crypto without selling.
👉 Loan flexibility – no mandatory monthly payments on Bitcoin loans (users repay whenever it suits them best).
👉 Competitive rates – users can access funding secured by their Bitcoin with rates starting from 12.4% (that’s a highly competitive rate btw).
👉 Additional benefits – users can unlock liquidity without paying taxes, and continue to earn interest on other assets held in Growth accounts (not those used as loan collateral).
It’s likely going to take a hot minute for a wide range of Ledn-style competitors to pop up, because the two core tenets needed to win the hearts of retail and institutional investors (trust and track record) take time to establish.
In the meantime – if you’re looking to put your crypto to work (whether as a liquidity provider, or by taking a loan against your holdings) but don’t quite have the appetite to explore decentralized options…
You can get a closer look at how a wide range of centralized lending platforms stack up against Ledn by clicking the link below. 👇
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