Deep-dive: Maple Finance
Institutional capital market infrastructure that enables capital flows and borrowing to occur
Introduction
Maple Finance is an institutional capital market that was originally built on Ethereum but now on Solana as well.
Maple enables institutional borrowers to borrow from the DeFi ecosystem. Individual lenders are able to supply capital into pools, and capital supplied to the pools is lent out to institutional borrowers.
Currently, Maple Finance has issued over $1,533,711,365 in loans and $733,465,780
Mission: Providing a capital market infrastructure that enables capital flows and borrowing to occur.
Maple is transforming capital markets through technology, and brings credit market on chain. The smart contracts are used to sign lending contracts, and the blockchain seals them.
Think of Maple Finance as the "Shopify for Lending". Maple has a pretty similar model to TradFi's credit fund but with all the DeFi capabilities that makes it even sweeter (pun intended).
Team
Maple Finance’s CEO & Co-Founder is Sid Powell, who was the Treasurer for Angle Finance 3 years back and a Senior Associate in National Australia Bank before that.
Joe Flanagan, Maple’s Co-Founder, is also a Managing Director in Clover Advisory since 2019.
Maple’s team is passionate about transforming capital markets and they bring experience from various industries such as banking and tech.
Brief Intro to Lending
Credit is what makes the world go around.
Businesses need capital to operate and to grow. Credit enables businesses to invest in R&D to grow teams, acquire assets to scale, as well as to expand. There are 2 options for businesses:
Debt Finance
Equity Finance
Businesses tend to prefer Debt Finance as it allows shareholders to retain ownership while still providing the business with the capital it needs to grow.
Undercollateralized lending is common in TradFi, because lenders benefit by receiving an interest rate which compensates them for the risk. However, businesses are typically not saddled with collateral that they can put down to borrow. This is the reason why undercollateralized lending tends to be the norm.
Maple Finance vs TradFi Model
So, how does Maple Finance beat the traditional finance model?
TradFi markets are notorious for their inefficiency, lack of transparency, and systemic risks. Maple Finance tries to transform the debt capital markets through blockchain technology by making it easier, more operationally efficient, and more transparent.
There are 6 core challenges here.
Operational Efficiency
Loan turnaround times in TradFi are very slow, only 7% of loan requests are processed within a single week.
As compared to TradFi, loan processing on Maple is immediate, efficient and runs 24/7 round the clock as it is utilizing a public blockchain. There are no holidays or 9-5 work days on Maple Finance, allowing loans to be issued at any given time.
Transparency
TradFi is not transparent, leading to unknown credit risks.
On Maple Finance, loan and borrower details, actions of individual users etc. are all visible on-chain, enabling more effective risk management and analytics on capital flows.
Accessibility / Network Effect
TradFi is usually focused on one geographic area.
Maple Finance is global, open and accessible. Users can come from all over the world, allowing Maple to generate a dense network that will be effective when running a lending business.
Tooling
The average TradFi needs to enter data into a wide variety of forms and operational tools in order to originate a single loan.
Maple Finance is a one-stop-shop for operations and reporting for all users, taking out human error as it is just reading directly from the blockchain.
Compliance
Compliance on TradFi is very costly, whereas compliance is built into Maple's protocol itself and is executed by smart contracts. Human discretion is not present, which makes it much more cost-effective and predictable.
Pricing
The variety of tools and overhead means the piling up of subscription and overhead costs in TradFi.
On Maple, it acts as a software bundle similar to a Google Chrome browser which is free to use. Maple only charges a small origination fee for borrowers based on every dollar of loans issued.
Maple Participants
Let us start by understanding the participants in Maple:
Lenders
Maple provides options to invest in a broad range of pools, allowing yield-generation by lending to blue-chip institutions in the crypto sector that are cash flow generative.
Examples of current lenders:
Family Offices
Yield Aggregators
Corporations
DAOs
Other TradFi institutions
Lenders can simply choose their Lending Pool Fund based on their preferences and risk appetite, set-and-forget, and receive interest payments that are coming from real businesses who are generating real revenue.
An important thing to note is that lenders have self-custody of their own assets. Loan and borrower details are also seen transparently on-chain.
Borrowers
Borrowers are large, reputable and cash-flow generative crypto institutions who come to Maple Finance to access credit for business expansion.
Stringent KYC-AML, credit checks and term agreements are completed by Pool Delegates in order for the institutions to start borrowing.
Example of borrowers:
Hedge Funds
Prop Traders
Market Makers
Exchanges
Centralized Lenders
Crypto Miners
Scale-Ups
Once borrowers are whitelisted on the platform, they get access to credit 24/7.
Pool Delegates
Each pool is managed by what we call Pool Delegate. The Pool Delegate is responsible for underwriting loans, perform due diligence of the borrowers, negotiate loan terms, and liquidating collateral in the event of a default.
These Pool Delegates benefit from Maple's marketing and network effect on users and institutions.
Pool Cover Providers
Pool Cover Providers are lenders with a higher risk appetite, because they have access to increased yield by providing first loss capital on the platform. What this means is their funds will be the first line of "defense" whenever the borrower defaults.
These providers are effectively depositing into a subordinated tranche that receives a portion of the interest coming through the platform.
Stakers
Holders of the governance token MPL who stake them receive xMPL. Returns from staking are derived from protocol revenues and can be withdrawn immediately.
Estimate initial APY for staking is 5-10%.
Target: Crypto-Native Borrowers
As of now, the product market fit is with Crypto-native borrowers, but the model is scalable and applicable to any industry, whether it's SaaS, Tech, Space or even Health Tech.
Conclusion
In conclusion, Maple Finance brings efficiency and transparency to global credit markets by providing capital seekers, credit funds and capital allocators with the technology they need to optimize their operations for compliance, efficiency and growth.
Resources
Debt and Equity Finance Illustration
Tools and Analytics
Maple Finance on Dune Analytics