Toronto-based cryptocurrency lending platform Ledn has raised $70 million in a Series B funding round to support the growth of its digital assets lending business, including a new Bitcoin-backed mortgage product.
The round valued the company at $540 million and was led by 10T Holdings, the company announced on Wednesday. Other investors included Golden Tree Asset Management, Raptor Group, and FJ Labs. Another 11 existing venture investors, such as White Star Capital and Kingsway Capital, followed on in the round.
Founded in 2018, Ledn focuses on saving and lending products for Bitcoin and other digital assets. It claims that the startup has over $1.7 billion in assets from clients in 127 countries. Loan originations in dollars increased by more than 25% since the third quarter of 2020, and 44% of loan clients are in Latin America.
The Bitcoin-backed mortgage product accepts Bitcoins and properties as collateral for loans to clients that want to purchase new real estate or finance a property they already own. Loans amounts are equal to 50% of the combined value of both Bitcoins and property.
The product is currently offered with a two-year term, with the possibility to be renewed. It requires regular monthly interest payments. Rates will depend on market conditions, but the inclusion of the collateral can reduce costs, the company explains on the website.
The home lending industry has a massive opportunity to digitalize to create efficiencies and to deliver a simpler end-to-end user experience that would benefit both borrowers and servicers.
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According to Ledn, if Bitcoin prices drop, the client needs to deposit more collateral or pay down some of the principal. Otherwise, the company will sell part of the currency to meet the required loan-to-value of 50%. Clients, however, will gain when Bitcoin value increases.
Already in pilot mode in Canada, the product is expected to be offered broadly in the country and the United States early in 2022. The company targets $100 million in originations by the end of the first quarter of 2022.
Adam Reeds, CEO at Ledn, said in a statement that most people that hold extensive wealth in Bitcoin can’t use their assets to qualify for a mortgage at a bank, and the product is for those who choose to invest outside the mainstream of legacy banks.
“Our clients want to diversify their portfolio in order to protect their wealth and then utilize that wealth for instances such as purchasing a home, but one should not come at the expense of the other,” he said in a statement.
The cryptocurrency market was worth over $2.2 trillion on Wednesday, according to CoinGecko. Some banks, lenders, and fintechs are testing the technology, but the lack of regulatory clarity and fears of volatility have kept these currencies from becoming fully integrated into products and services.
Regarding the mortgage industry, the acceptance of cryptocurrencies by investors lags the development of new products. Among government agencies, there remains significant resistance to accepting cryptocurrencies.
Early in December, Freddie Mac said that due to the high level of uncertainty, borrowers’ income in cryptocurrency may not be used to qualify for the mortgage. Also, borrowers may exchange cryptocurrency for U.S. dollars for mortgage transactions. The agency said it will continue to monitor cryptocurrency developments to update requirements in the future.
In September, the Pontiac-based wholesale mortgage lender United Wholesale Mortgage accepted its first-ever cryptocurrency mortgage payment – and five more in October. The transactions, however, were used as models to “better assess scaling cryptocurrency payments for consumers,” the company said.
Due to “incremental costs and regulatory uncertainty in the crypto space,” the lender decided to keep this initiative in the pilot phase for now,” said Mat Ishbia, president and CEO of UWM.
Figure Technologies, the lender founded by former SoFi chief Mike Cagney, is building a platform based on blockchain technology, which in the future could facilitate cryptocurrencies used for home buying, but is years away.