Friktion launches under-collateralized crypto lending service for institutional clients seeking DeFi yields

Friktion, a Solana-based asset management platform, launched a crypto loan offering for institutional clients seeking DeFi yields.

Friktion, a Solana-based asset management platform, launched a crypto loan offering for institutional clients seeking DeFi yields. The company’s crypto lending offering will provide clients under-collateralized loans, which would not require collateral leading to a capital-efficient borrowing.

According to a recent post by TheBlock, Friktion believes that its crypto lending will provide greater lender safety, as the lending product will have junior to senior tranches. Notably, Junior tranches will offer 11%–17% annualized rates to cover senior lenders’ loan defaults while Senior pool lenders get 8%–10% annualized returns.

Before opening loan pools, third-party underwriters referred to as “conductors” will do due diligence on borrowers, in line with the company’s risk-management plan, according to the announcement. The company stated:

“Throughout the tenure of the loan pool, conductors will also perform real-time risk monitoring of borrowers’ positions both on exchanges and on-chain. In an unlikely event of default, the junior pool serves as first loss capital and provides default protection to the senior pool.”

It is important to note that usually, under-collateralized loans are risky for lenders, especially if borrowers default. The latest examples that got exposed to under-collateralized financing are the bankrupt Celsius Network and Voyager Digital.

Friktion highlights rising Institutional lending demand

DeFi lending is generally over-collateralized. Collateral in excess of the loan amount is typically required by the big DeFi lenders such as Aave and Compound. Friktion notes that this requirement for collateral is a big problem for institutional players in the DeFi lending space because of worries about how well capital is used. The year-long crypto bear market has reduced DeFi yield, worsening these concerns. Friktion says that institutional DeFi lending, especially under-collateralized stablecoin loans that save borrowers money, is increasing despite these issues.

The rise in the demand of crypto-related services among institutional investors, as reported by Fidelity Investments just last month has resulted in several new offerings in recent times. While Bitwise recently introduced its Active Strategies team with industry leaders in its 10th crypto index fund, Nasdaq revealed the development of a brand-new section committed to the rising cryptocurrency business.