Mint Ventures in-depth report: Maple Finance as a pioneer in institutional credit business

This article is sourced from Mint Ventures, authored by Mint Ventures researcher Li Yuxuan.

Summary

From the current implementation, the institutional lending business space of Maple Finance is limited;

Maple Finance does not have a significant competitive advantage or valuation advantage compared to its main competitor TrueFi;

Business Overview

Maple Finance's business direction is lending / institutional credit loans. There are three roles in its business process: borrower, liquidity provider, and liquidity pool representative.

The borrowers are cryptocurrency-native institutions, including market makers and market-neutral funds, who can borrow funds without full collateral, with collateral ratios ranging from 0-50%. Providing credit loans to institutions is also Maple Finance's main value proposition.

Liquidity providers (liquidity providers, which are essentially lenders, will be referred to as "fund providers" hereafter to avoid confusion) deposit funds into the liquidity pool to earn interest. Fund providers can claim their earned interest at any time, but they must wait until the loan is completed to withdraw the principal, with the withdrawal period currently set at 180 days.

Liquidity pool representatives (Pool Delegates) are the managers of the liquidity pool, similar to fund managers, who need to assess the creditworthiness of institutional borrowers and review loan terms (amount, duration, interest rate, and collateral ratio). To ensure loan safety, Pool Delegates must also pledge at least $100,000 worth of USDC-MPL (the project's native token) as collateral for the liquidity pool to return to fund providers in the event of loan default.

In addition to the interest paid to fund providers, the protocol will generate ------

Setup Fee

Equivalent to a financing service fee, the setup fee is deducted directly at the time of loan disbursement. The setup fee is distributed between Pool Delegates and the MPL treasury, which regularly allocates it to all MPL holders.

Ongoing Fee

Equivalent to a fund management fee, the rate is set by Pool Delegates and deducted from the interest received from fund providers. The ongoing fee is distributed between Pool Delegates and the stakers of the MPL-USDC LP in the risk reserve.

Currently, the first and only pool is the digital asset fund Orthogonal Trading, with Pool Delegates being Josh Green, the founder and CIO of Orthogonal Trading. This pool successfully issued $17 million in loans to borrowers including Alameda Research, Wintermute, Amber Group, and Framework Labs on May 25, and opened the second phase at the end of June, with the total pool funds reaching $37 million. The specific data for this pool is as follows------

Data source https://app.maple.finance/#/liquidity/60a48265ec0b150011480d2a

Project Overview

Team

Founder Sidney Powell previously worked at an Australian non-bank lending institution, Angle Finance, and before that at National Australia Bank in institutional business. Powell is an early participant in DeFi, having begun exploring the possibility of non-overcollateralized lending in DeFi as early as June 2019, and he holds a CFA certification.

Another co-founder, Joe Flanaga, previously served as CFO at an Australian listed company and has experience working at PWC.

According to LinkedIn data, Maple Finance has a total of 38 employees.

Overall, the founding team of Maple Finance has rich traditional finance experience, and the total number of team members is relatively larger compared to similar-sized projects, indicating a strong team capability.

Historical Development and Roadmap

Maple Finance initially aimed to create Maple Smart Bonds, a platform supporting users to create ABS on cDai (Dai deposit certificates in Compound), supporting a three-tier structure where the first tier has better security (high collateral ratio) and slightly lower returns, the second tier has a slightly lower collateral ratio and slightly higher returns, and the junior tranche is borne by the issuer. At that time, the product had an MVP (minimum viable product) and successfully launched at the end of 2019. This idea simulated ABS products in the real world, which had space when cDai usage scenarios were insufficient, but once a platform supporting cDai collateral emerged (e.g., Cream), this system became unnecessarily complex.

In early 2020, Maple officially shifted to the direction of credit loans, mentioning that their loan approach was a simulation of internet P2P business, specifically including:

• Hawk: A collateral requirement of 0%, meaning completely credit-based loans, but requiring a passport copy and verification through a Zoom call before adding new members to thoroughly assess them. Borrowers need to provide two pay stubs to show income. The intended use of the loan is for purchasing consumer goods like cars or laptops. Interest is generally 5-9%, with a term of 18 months.
• Happy Medium: A collateral requirement of 20%, new members need to use Bloom to verify their LinkedIn or Twitter. No pay stubs are required, but the borrower's address must show at least 1,000 DAI in the past three months, with a loan term of 6-12 months and an annual interest rate generally between 10-15%.
• Light Touch: A collateral requirement of 33%, no identity verification is needed, using algorithms to assess default probability based on address token history, with small loans under 100 DAI and annual interest rates as high as 40-50%.

In June 2020, their front end officially launched, still following the internet P2P approach. Notably, they collaborated with an institution to launch a scoring system for addresses to replace traditional credit scoring cards.

However, simulating offline P2P lending still faces a core issue that cannot be resolved: KYC for P2P loans and the credit information associated with KYC (such as the FICO score in the U.S. and the People's Bank of China credit system) are scarce resources, while on-chain loan addresses are not. Unless effective links can be established between addresses and KYC (e.g., through tools like BrightID) and on-chain credit information can be effectively transmitted to the real world, establishing a complete "recourse-as-a-service," on-chain P2P lending will remain a niche market.

For more on recourse-as-a-service, refer to "20/21 DeFi Review and Outlook: The Rise of Emerging Value Networks and the Potential of Wall Street Interfaces."

In December 2020, their financing article disclosed a shift towards institutional credit and announced the completion of the transformation in April.

After completing the LBP (Liquidity Bootstrapping Pool, a form of fundraising through discounted auctions) in early May this year, Maple Finance released its roadmap, which appears to be progressing as planned, with all items executed, including------

• May 2: Balancer 50:50 pool opened -- after completing Maple LBP, a 50:50 MPL:USDC Balancer pool was created to provide initial secondary market liquidity for MPL tokens and to collateralize the launch pool at the time of protocol deployment. The initial MPL:USDC in the balancing pool was provided by the MapleDAO treasury and will receive further support from investors who will stake their MPL holdings in the first pool deployed on Maple.
• May 12: Completed deployment on the ETH mainnet and created the first liquidity fund pool. The launch pool cap was set at $15 million, with Orthogonal Trading as the pool representative.
• May 20: Announced a liquidity mining program for end-users, allowing retail participants to deposit USDC into the liquidity pool with a six-month lock-up period to earn USDC yields and MPL rewards.
• May 25: Successfully provided $17 million in loans to borrowers (including Alameda Research, Wintermute, Amber Group, and Framework Labs).
• Late June to early July: Second liquidity fund pool and increased loans -- four to six weeks after the creation of the launch fund pool, the second batch of loans will be funded by Orthogonal Trading, and a second liquidity fund pool will be added to Maple. Borrowers on the waiting list will have the opportunity to submit loan applications.

From Maple's development history, they have consistently focused on releasing liquidity in DeFi lending. Starting with asset securitization, then moving to P2P lending, and now confirming institutional credit, all revolve around this direction, and the team's exploration in this area is quite steadfast and commendable.

Financing Situation

Maple Finance has a strong lineup of investment institutions, with a total of 2 rounds------

December 2020: Valuation at 0.56U/MPL (fully diluted market cap of $5.6 million) (reverse calculation, the process is detailed below)

The DeFi lending platform Maple Finance aimed at institutions and enterprises announced the completion of a $1.3 million seed round financing through the sale of governance tokens MPL, with investors including Cluster Capital, Framework Ventures, Alameda Research, FBG Ventures, One Block Capital, The LAO, Bitscale Capital, Synthetix founder Kain Warwick, and Aave founder Stani Kulechov.

March 2021: Valuation at 5U/MPL (fully diluted market cap of $50 million)

Maple Finance completed a $1.4 million financing led by Framework Ventures and Polychain Capital to further develop and launch the pool.

According to the project party's disclosure during the LBP, this round's valuation was 5U/MPL, meaning that the $1.4 million raised in this round totaled 280,000 MPL. Based on the total of 2.6 million MPL received by investors, it can be inferred that the $1.3 million raised in the previous round at the end of 2020 totaled 2.6 million - 280,000 = 2.32 million MPL, with a cost of 0.56U/MPL. It can be seen that the valuations between the first and second rounds differed by 10 times within three months.

Additionally, this article discloses that the team's tokens have a 2-year vesting period, while investors' tokens have a 1.5-year vesting period.

At the end of April 2021, Maple Finance completed the LBP (Liquidity Bootstrapping Pool) on Balancer, raising a total of $10,332,236. The average cost of the LBP was $21.98, equivalent to an FDV of $220 million.

Token Analysis

Token

The project's native token is $MPL, with a total supply of 100 million tokens. The token distribution and unlocking situation are shown in the figure below:

Data source https://maplefinance.ghost.io/mpl-tokenomics/

Token Economics

In addition to governance, MPL has two other functions: capturing fees and serving as a risk reserve (function not yet launched).

As mentioned above, MPL can capture a portion of the setup fee (distributed periodically by MPL, specific methods not yet mentioned) and a portion of the ongoing fee (by providing LP for the risk reserve).

The risk reserve (this function is not yet launched) is chosen by the team as MPL-USDC LP, and Pool Delegates are required to prepare a portion of the risk reserve when creating the pool as a credit enhancement measure for the liquidity pool.

Price Trend

Data source https://www.coingecko.com/en/coins/maple

Currently, the MPL price is $6.37, close to the second round private placement price.

MPL currently has a circulating market cap of $10.2 million and a fully diluted market cap of $63.7 million.

Business Analysis

Competitors

In the niche market of institutional credit loans (non-flash loans), Maple's most obvious competitor is TrueFi.

Maple and TrueFi are quite similar, both offering institutional non-full collateral loans, and the yield on stablecoins is not high (around 10%), with most APY coming from the distribution of their own tokens.

The difference lies in: Maple uses liquidity pool representatives (Pool Delegates) to introduce and assess loans, with each lending pool potentially having different pool representatives. To some extent, each liquidity pool representative acts as a fund manager, allowing investors to choose different fund managers for investment.

In contrast, all loans on TrueFi are evaluated by a DAO, meaning that investing in TrueFi equates to fully trusting the DAO's investment capability. There is indeed a significant gap between the two, but I believe this gap is not a key factor in the business.

In terms of business data, since its launch at the end of November 2020 and being forwarded by SBF and AC, TrueFi has completed a total of $220 million in institutional loans and has accumulated a number of institutional clients including Alameda, Wintermute, and Poloniex (with Alameda and Wintermute appearing on both Maple and TrueFi's client lists).

In terms of financing, TrueFi's operating team TrustToken completed a strategic financing of $20 million in 2018, with investors including a16z crypto, BlockTower Capital, Danhua Capital, Signia Venture Partners, Slow Ventures, and ZhenFund, indicating a strong background.

Currently, the TRU token has a circulating market cap of $51.15 million and a total market cap of $211 million, and it has been listed on Binance, with the price trend shown in the figure below, with the token price near its historical low------

Data source https://www.coingecko.com/en/coins/truefi

Additionally, another player in the credit lending space is Goldfinch, founded by two former Coinbase employees, which raised $1 million in seed funding from Coinbase Ventures and $11 million in Series A funding led by a16z. Since its launch in December last year, it has lent $1 million to thousands of borrowers in Mexico, Nigeria, and Southeast Asia. However, their business focuses on unsecured loans to individual users, which is not entirely aligned with Maple Finance's business.

Currently, the entire institutional credit business is still in a very early stage. Overall, compared to TrueFi, Maple does not show significant advantages in terms of business model, financing background, actual business data, or even token market cap (the business volume is still too small to effectively value).

Industry Analysis

The direction of institutional credit chosen by Maple, on one hand, targets institutions, and on the other hand, non-collateral credit also expands credit leverage and introduces new liquidity. Both of these niche directions are areas I am optimistic about, but regarding Maple's current business, it is not very attractive.

If we summarize the services provided to institutions by Compound and Aave as "putting off-chain institutional money into the cryptocurrency market," then the institutional credit lending business of Maple and TrueFi can be summarized as "raising retail money for cryptocurrency institutions." The fundamental difficulty of this business lies in the fact that the risk-free yield within the cryptocurrency world is too high (which may precisely be the reason why the institutional businesses of Compound and Aave are viewed positively), while the yield that institutions can pay is limited.

From the data of TrueFi and Maple, even for cryptocurrency institutions, the loan interest rates they can bear are approximately: 8-10% for 1-month terms, 9-12% for 3-month terms, and 10-15% for 6-month terms. Due to the needs of institutional business, deposits can only be fixed-term, which means users need to give up the most important thing in the cryptocurrency world -- liquidity. The loss of liquidity makes this yield appear not sufficiently attractive, so to attract users, Maple and TrueFi typically offer high incentives in the form of their project tokens.

The problem is that, on one hand, maintaining a high APY (and thus token price) is not easy; more importantly, on the other hand, after the project token distribution is completed, how to match the interest rates that institutions are willing to pay with the yields that retail investors can accept?

Institutions tend to be more rational overall, so the interest rates paid by borrowers will have a significant correlation with their qualifications, and institutions willing to pay higher interest rates generally have poorer qualifications. This may increase risk. Even for top cryptocurrency institutions, their business is not absolutely safe (consider the incidents involving lost funds at Mt. Gox and Fireblocks). For projects engaged in institutional credit business, a single accident can have a serious impact on the project.

Therefore, overall, we believe that the current space for institutional credit business is limited.

References

• https://app.maple.finance/#/liquidity
• https://maplefinance.gitbook.io/maple/
• https://maplefinance.ghost.io/
• https://www.chainnews.com/articles/570022485536.htm
• https://www.coindesk.com/maple-finance-corporate-lending-defi
• https://www.coindesk.com/maple-finance-raises-1-4m-for-its-reputation-based-defi-lending-platform
• https://maplefinance.ghost.io/guide-to-the-maple-lbp/
• https://medium.com/swlh/crypto-lending-the-missing-ingredient-4862d54cdf53