DeFi
Dakota Plans to Provide Banking-Like Services on DeFi to Crypto Depositors
Dakota, which describes itself as a crypto bank trying to right the wrongs of centralized lenders like Celsius and BlockFi, came out of hiding on Wednesday.
The company, founded by a group of former Airbnb, Anchorage and Coinbase Custody executives, offers treasury management, lending and payment services to businesses that pay a monthly fee and gain access to a platform that allows them to lend their deposited crypto to a selection of Decentralized Finance Protocols (DeFi).
The model differs from previous centralized crypto lenders like Celsius Network, which filed for bankruptcy in July 2022, and BlockFi, which did the same four months later, CEO Ryan Bozarth said. In those cases, companies were at the center of the process: They took deposits, lent them out, and took a fee on the interest payments.
At Dakota, customers make the loan decision and choose Decentralized Finance (DeFi) they want to use. Monthly fees range from $150 to $1,500, and customers who choose to lend their deposits can earn yields of up to 9%. Stablecoin holders will receive a yield based on U.S. Treasuries.
“The biggest difference for us is that we only lend through DeFi protocols, so there’s no centralized lending,” Bozarth, who was previously CEO of Coinbase Custody, said in an interview. “There are some risks with DeFi protocols, but at least it’s a transparent risk, it’s a smart contract risk.”
While Dakota seems like an innovative idea that solves a problem, the crypto industry is still suffering from the scars caused by the collapse of companies like Celsius, BlockFi, and FTX.
Celsius filed for bankruptcy in July 2022, when it had $12 billion in assets under management two months earlier. The company’s predicament was caused by setting an overly ambitious yield of 17%, which led the company to use newer, riskier blockchains like Terra. The eventual bankruptcy, like BlockFi’s, left hundreds of thousands of creditors in the dark about whether their deposited funds would ever be returned.
With DeFi, there is a greater degree of transparency, Bozarth said, pointing to DeFi lending protocol Aave.
“If you look at the last crisis, [Aave] “They worked perfectly because everyone knew there was nothing to trade with, you would be liquidated if you hit that marker, and so they worked phenomenally well, whereas centralized lenders did not.”
Dakota also offers services for transfers, deposits and withdrawals in dollars on the fiat currency market. These services are designed for cash management purposes, with all dollars deposited on the platform being backed by US Treasuries.
One of the biggest hurdles for U.S.-based cryptocurrency companies is creating a product that can comply with varying levels of regulation across jurisdictions. Last year, Coinbase (COIN) had to deploy an offshore sector of its company due to restrictions in the United States
Dakota’s dollar services typically require money transmitter licenses (MTLs) in each state. The company will circumvent this requirement in the U.S. by using a third party with an MTL if necessary. In Europe, it plans to obtain a Virtual Asset Service Provider (VASP) license, and each region will have its own regulatory and compliance requirements, some of which Dakota will develop internally and third parties will use for the rest.