Follow-up on Reddit AMA with CoinLoan’s CEO and CTO

On August 10, CoinLoan’s CEO Alex Faliushin and CTO Max Sapelov connected to Redditors during a highly awaited AMA (Ask Me Anything) session. Given the lingering market turbulence, we felt it necessary to share good news and provide first-hand updates on our plans and operations.

We were pleased with the community’s attention and are grateful to everyone who joined and contributed to the live discussion. If you missed the event, worry not — this post will fill you in.

As we expected, CoinLoan’s effective response to the downturn took center stage. Many participants were eager to learn about withdrawal limit changes, the protection of users’ funds, and the specifics of our business model. Here are all the questions and answers from our CEO and CTO, sorted by topic.

Withdrawal limits

— What's on the horizon w.r.t. the temporary withdrawal limits? That is, when are they going away or at least getting changed to something more reasonable if the temporary measures have to be extended (weekly or monthly limit in high six figures)?

ALEX: Our current withdrawal limit is $300K per month, which is $3.6m per year. This is a substantial amount of money for anyone. We are, of course, monitoring the situation and are happy to ease the limits even more as soon as it is possible in the most sustainable way. We are fully aware that even our current limits are not acceptable to everyone, and we are very much looking forward to easing them even further.

We want to remind you that this environment has no precedents in the whole history of the crypto lending space, and it was nearly impossible to prepare for it. We are working hard to launch Fixed Period Saving that will allow us to be better prepared in the future in case a similar situation arises.

— Why have a few of CoinLoan’s competitors been able to maintain their previous withdrawal limits while CoinLoad has failed to do so?

ALEX: The main difference here is a fixed terms yield product, which we currently do not have. Fixed-term deposits will provide a much better way to organize and predict money management procedures like cash inflow/outflow. Stay tuned regarding fixed-term deposits since we are about to launch this service on our platform in the next 4-6 weeks.

— When will the withdrawal limit be increased? Please provide details regarding the health of CoinLoan's business.

ALEX: We do not have any financial problems. Let's take the example of a bank that is being very well-run and does not have any problems. Even the healthiest bank would have to be forced to limit withdrawals when literally everyone is coming to take out their assets. This is exactly what is happening here on a broader scale.

Market conditions are currently not allowing us to make decisions right away. We were just discussing lifting the limits even further, but with Hodlnaut’s insolvency it became much harder once again. We really have to wait patiently and see the market reaction to what happened with another lending provider halting withdrawals.

Money being lent out cannot be taken back in the blink of an eye, and that makes it hard to perform such operations.

— How is CoinLoan going to re-establish trust in its service? Once I've fully withdrawn all my funds, I won't return to CoinLoan until full transparency is granted and trust is re-established. However, if everybody will do so, it‘s the end for CoinLoan. I imagine the AUM is heavily draining…

MAX: We see that most of the recent withdrawals were initiated by CoinLoaners who joined us last year. The CoinLoaners who have been with us longer mostly still hold their assets even during this market turmoil.

We plan to raise the withdrawal limits, and when this market turmoil ends, everyone can see who will survive and make their own decisions.

— Why not gradually increase the withdrawal limits? That would be a good sign to the CoinLoan community. Start with, for example, 25,000 per day and see how it goes, and later increase…

MAX: That's actually what we are doing. Firstly, the limit was $5K, now it's $10K, and the following increase iteration is upcoming.

— It would have been nice to have told me and everyone else in an email. Please keep us updated when and at what amount the withdrawal limits change.

MAX: We understand that it may look bad that we haven't sent an email regarding new limits. However, there was a positive intention. We wanted to distribute the load to our support team over several days so everyone would get a response on time and it would not cause extra panic.

— Did the current daily limit successfully balance the flow of funds? In other words, do you expect the $10k limit to decrease in the near future, or is the current limit sustainable?

MAX: Yes, it did. The implemented measures worked as expected. Of course, we plan to continue gradually increasing the withdrawal limits.

CoinLoan’s business model, data, statistics, and operations

— How much has CoinLoan grown in the last few years (year-over-year AUM growth), before the last 3 months?

ALEX: Over the last couple of years, we as a company have grown over 4,000% by AUM.

— And how has CoinLoan’s AUM changed (% wise) in the last three months?

ALEX: Our AUM over the last 3 months has decreased by approximately 38%. We have been in business since 2017 and have seen a lot of different market conditions. We must admit that what we are witnessing now is the worst kind of environment we have seen, but again, our risk-management policy and sustainable business model has yet proven itself to be working very well EVEN in extreme market conditions, and we are very happy about it.

— What's the average size of CoinLoan’s customers — that is, the average deposit size and the average loan size?

ALEX: The average deposit size is $60k on average, which is according to our research, also the biggest in the industry. On average, a borrower takes out loans worth $78k.

— And the term (months/days) of the average loan?

ALEX: The average loan term is 2 years. Normally they vary from 1 to 3 years.

— Can you confirm that CoinLoan does not play games with the borrowers' collateral (e.g. lend it out or otherwise trade/exchange to something else)?

ALEX: Yes, that is correct – we do not practice rehypothecation. Please see more details here: https://coinloan.io/blog/coinloans-yield-generation-model-key-things-to-know/

— Who are your borrowers (general profile)?

ALEX: Our crypto loan engine is one of the most advanced vehicles that is on the market. It can be used to satisfy enormous amounts of different needs and therefore our customer cannot be described as easily in broader terms. To this day, we do loans that no other company does – for example, crypto-to-crypto or fiat/stable-to-crypto or crypto-to-fiat/stable.

All of these directions are available for both institutional and retail customers. Not one of our competitors allows their users to use such loan products. We can also say that CoinLoan was the very first crypto lending platform and through time has built up a lot of long-term healthy partnerships with people who have been in the industry since very early days. Our borrowers are mainly hedge funds, high-net-worth individuals, also trading floors and exchanges, many Bitcoin miners.

— Can you confirm that all loans are always, without exceptions, over-collateralized and the collateral is set to be auto-liquidated before it falls below 100% of the outstanding loan value?

ALEX: Yes that is correct and we can confirm this fact. Liquidations are always automatically executed at 90% LTV. We are aware that some of our (ex) competitors, at some times, have completely disabled liquidations, but that has never been the case with CoinLoan.

We are a financial instrument in the first place, and for a sustainable and long-term viable business model, it is not possible to take such risks upon ourselves. This is an uncomfortable situation for any of our clients, and our aim is to keep all of our customers on our platform for the long term, but that is – and will be — part of our strict risk-management policy.

— Are customers (and their deposits) treated legally as 'depositors' (or some other designation that is higher up the food chain than 'creditor')? If not, why not?

ALEX: According to our T&C, all of our customers' money is their money. The ownership of the funds is fully theirs.

— Can you confirm that your liquid assets (i.e. collateral held on the loans outstanding plus user deposits not lent out but held in a withdrawal hot wallet and used for arbitrage and other such HFT yield-gen strategies) have at all times exceeded, and continue to exceed, your liabilities (i.e. user deposits)?

ALEX: This is not a completely correct statement, as the idea of a hot wallet is to hold portions of assets that are required for withdrawals for a certain period of time. You can see from the previous answers that we have been strictly following our money management procedures. This is one of our core principles to follow.

Whichever yield generation processes we participate in, we always strictly follow the very same principles that have enabled us to remain a solvent and working company.

— The (market-neutral?) strategies you deploy to earn interest must have a maximum capital threshold. That is, if you add any more money to the pot, you would be earning less yield per dollar in the pot. How close is CoinLoan to reaching this maximum? What will happen when we do? Provide less yield? Disallow any new deposits? Look for other strategies?

MAX: Of course, we have cap thresholds. We have configured limits for max caps of total assets in Interest Account for each asset. Some CoinLoaners have experienced this in the past — they couldn't deposit more of particular assets to IA when that limit had been reached.

So the answer to your question is that we stop accepting deposits of those assets to  Interest Account when we can't efficiently manage bigger volumes.

— How has CoinLoan been able to survive when multiple competitors failed?

ALEX: The main strength of our company has been our (super) strict risk-management policy and principles. Some of our principles are: we never give out under-collateralized loans, we never participate in any DeFi projects, we never use products that can cause margin calls.

With this in mind, we are playing the long-term game. In the short term, we were always considered “too pricey”, and therefore it was hard to stay competitive in such a greedy market. But thanks to these policies we are still here, and our plan is to become one of the key lending platforms in the upcoming cycle.

— I read in an email a few weeks ago that CoinLoan has not partaken in any risky DeFi projects or been involved with Three Arrows Capital. How could CoinLoan determine that these projects or companies were "red flags" when other platforms chose to be involved?

ALEX: It's really just simple human greed. There is nothing wrong with giving out loans to other players, but doing so with leverage and without collateral is super risky, especially with other people's money, which some of them really depend on.

CoinLoan is here to serve our clients' needs when it comes to borrowing/lending on terms that are profitable. We do not spend too much of our time spotting “red flags” or “risky projects” since we follow our risk-management approach.

Why is there no effort to be known as a service? Low quantity of ads on other sites, no movement on social networks, etc... (Blog posts about crypto space are not needed having a lot of other sources to do that, we prefer more effort in better and new services and products.)

MAX: We have seen several market participants investing enormous budgets into advertising and marketing. Where are they all now?

— Of course, the main question is about rehypothecation. Do you practice it? How do you ensure segregation and safety of client funds?

ALEX: We are not practicing rehypothecation. We do not use our customers' collateral in any kind of borrowing operations. Our clients’ money and our company’s money are held in separate accounts, they are also held in different wallets.

— Why should I remain a CoinLoan customer vs. jump ship to a CoinLoan's competitor like Nexo?

MAX: It is always your decision and research. However, we're the oldest player on the market with a zero-incident track record.

— How many customers does CoinLoan have? And how do you explain to yourself this lack of interest in this AMA — despite the fact that many customers are heavily disappointed and upset with the actual withdrawal limit?

ALEX: CoinLoan is a growing business and we currently have over 200,000 customers. A lack of interest is an opinion. We have a lot of questions to answer.

We do not consider our customers heavily disappointed. Most of them have reacted in a really emphatic way since they understand that it is not easy to operate in such market conditions, especially given that most of the companies under the same business model have left the market completely by now.

What's more, many of our long-term clients actually deposited more funds after we showed that we are transparent and have a working business model. We are not planning to go anywhere and it is only a matter of time until we are able to fulfill every single of our customers' needs.

— I would like to ask about your team composition from a nationality perspective. The company is based in Estonia, but the majority of management seem to be from Russia. Why is this? It seems odd after 5 years of operation. Obviously, the team being mostly composed of Russian nationals gives me pause as Russia does not (and never has) extradited its nationals.

MAX: That isn't correct, as we are a remote-first company, and our team is distributed across various countries. Alex and his family have been residents of Estonia for more than 5 years. I'm a citizen of Ukraine and a resident of Switzerland now.

Product

— Any plans to support more deposit/withdrawal networks than the archaic and pricey ETH/ERC-20? If so, what other networks are coming (e.g. USDT over Tron/TRC-20, USDC over Polygon, BUSD over BSC/BEP-2)?

ALEX: Yes, of course – we have already finalized BSC and are looking forward to launching it in the following weeks. TRC-20 is planned next.

— What's up next for CoinLoan? That is, upcoming new products and services and anything else that your customers can look forward to in the foreseeable future?

ALEX: Again, we are working hard behind the scenes to be prepared for the future.

We are currently working on Fixed Period Savings, Debit Card Solution, and new security features like Yubikeys and whitelisting. We are also constantly improving our UI, dashboards and in addition to that we are looking to launch a margin lending product, an API for integrations with other platforms, and much more.

— When will CoinLoan offer an API to access account balances? The API is a very useful feature of Coinbase, and I'd love to have that available from a better-paying service like CoinLoan. I hate having to download a CSV, as this adds manual steps to my automated accounting/tracking of crypto investments.

MAX: We already have the API but haven't officially launched it and published docs as we want to improve it. However, if it has some demand right now, we'll open API docs soon.

— Is there ever any plan to create a UK bank account to enable transferring of funds for UK customers quickly via BACS? SWIFT adds fees for both of us and I think opening a UK account for you could be relatively simple.

MAX: We're negotiating with several payment providers to allow deposits and withdrawals with FPS/BACS at a low cost.

Opening an account is simple. That's true. But when it comes to crypto-related transactions, not all banks and payment providers will work with them, and the ones that work usually charge exorbitant fees for the transactions.

— What about a bounty program (in CLT, for example) for bugs and errors discovery?

MAX: We have had a Bug Bounty program for a long time. You can find a link in the footer of the website.

— On your platform using the exchange option, for example, let’s say XLM goes to $1,000 per XLM. If I go to exchange 100,000 XLM for USDC at that value, it would be $100 million USDC. Does your platform have the ability to handle that type of transaction/volume?

MAX: Currently, it's not possible to make such a large operation at once. However, we're working on a completely new exchange engine, which will allow faster and larger execution.

— That being said, at that time if I wanted to withdraw all of my XLM to sell it on an exchange, will I be limited on that withdrawal?

MAX: Currently, yes. It's correct.

Audit

— Do you have any plans to engage an independent third-party auditor on a regular (e.g. monthly or quarterly) basis and to produce and provide to your customers a general audit report/attestation as to the nature and composition of assets (funds, loans outstanding, etc.) vs. liabilities (user deposits)? Doing so would go a long way to give peace of mind for your customers and it'd be well worth the cost (think of it as a marketing investment). Among other things, such a report should go a long way to considerably reduce the magnitude of any future panic-driven bank runs.

MAX: We have seen a lot of questions regarding audits and references to some "Proof of Reserves" provided by other market participants. We fully agree that the CeFi industry needs more transparency, and recent events proved that. So we are working hard to find a good way of doing this right.

However, it's not as easy as one may think because most auditing companies don't know how to deal with crypto, especially such complex businesses as ours. We also don't want to just make a webpage like "Proof of Reserves" where we, or another website, will simply show "Reserves are more than liabilities," as we all understand that it's easy to fabricate this information. It's worth nothing in terms of trustability for those who understand how it works.

We hope you found this AMA as inspiring as we did. If you have questions that were not asked during this session, feel free to contact our team on Reddit or Telegram. CoinLoan is planning to hold more Q&A events in the future, so stay tuned!