What is so corrected about them?
The first reaction to a crypto fixed deposit can be some justifiable alarm level. The idea of ââfixed returns from a volatile asset class like cryptocurrencies may seem antithetical.
Before making that judgment, it can be helpful to understand what the product is.
Gaurav Dahake, who runs Bitbns, explains that the product was an offshoot of an earlier option on the exchange where traders could borrow and lend their tokens. Those who borrow would pay some interest to those who lend it based on the expected returns they could generate.
This product has now been simplified to a “fixed deposit” product, Dahake said. As such, the tokens collected via the bond product are retroceded to those who wish to borrow them at a certain interest rate. This interest, after deduction of exchange fees and commissions, is used to pay the fixed interest.
There are still unanswered questions.
How does the exchange guarantee the interest payable given the high volatility that cryptocurrencies tend to see? Dahake said there is a certain minimum guarantee that token borrowers must maintain, which they say is 110%. If the collateral falls below, the stock exchange liquidates it to ensure that the principal and interest are repaid.
Nonetheless, he recognizes that anyone investing in this product should be aware that the value of the token, and therefore interest (which is also paid in the same token), may be subject to fixed price volatility. So if Bitcoin’s prices drop in the 30 days that you’ve locked it down, you can get back the principal and some interest in Bitcoin, but its value in fiat terms will be much lower.
The other concern is the custody of the tokens. How do you know that the tokens you park with the exchange are safe? Could ephemeral operators emerge and deceive customers with their tokens?
According to Dahake, Bitbns is in talks with Fidelity Digital Assets to offer custody services on the stock exchange in India. Fidelity offers such services in the United States, but does not yet offer the option in India. This will help allay custody concerns, Dahake said.
Darshan Bhatija, co-founder of Vauld, sees it as a product of the credit market. Instead of keeping your tokens in a wallet, the equivalent of keeping change under the mattress, you can put them in a yield-generating instrument.
The return you earn is purely based on the demand and supply of tokens in the market. It will also be different from one token to another. Thus, the yield on Bitcoin may be lower than that of some high demand tokens.
The product, according to Bhatija, is not only a retail product, but also sees the involvement of sophisticated funds who may want to use leverage for commercial purposes.
The demand for lending and borrowing of these tokens, however, is relatively short-term; which means most of these offers are limited to 30 days. The attention span in the crypto market is still short, and three to six month products have worked, he said.
Vauld works with a custodian called BitGo, which offers these services worldwide, to keep the tokens safe, Bhatija added.