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How S’pore startup Hodlnaut is able to offer 10% interest rates on your cryptocurrencies

Editor’s Note: Starting 9th of August, Hodlnaut introduced a tier system in their interest rates, with interest rates on BTC up to 7.5% APY. Visit the official announcement for more information.

For founder of cryptocurrency high yield savings account Hodlnaut, Zhu Juntao had always been fascinated with how the financial systems work. A graduate from the Singapore Management University, Jun Tao joined Credit Suisse’s derivatives desk for three years before coming across cryptocurrency in 2017.

“I bought my first bitcoin back in 2015, and started doing spot arbitrages across the different cryptocurrency exchanges. It was very profitable for me then.”

However, Juntao was soon slapped with a high 55 per cent capital gain tax in Japan. He found that the taxes were too high, so he then left the country to return to Singapore.

In 2019, Juntao and his co-founder officially launched Hodlnaut, a crypto borrowing and lending platform, which lets customers deposit their cryptocurrencies and earn up to 10 per cent interest rate.

Earning 10% interest rates on your cryptocurrencies

To users who are unfamiliar with high interest rates offered in cryptocurrencies, it is not uncommon to question how sustainable is this high interest rate, especially when traditional banks are only offering one to two per cent annual interest rate.

In the traditional finance world, investors and traders would be familiar with leveraged trading, and leverage are often only provided up to 10 times your collaterals — this means you can borrow up to 10 times the amount you have.

This is also how property loans work, where your property is pledged as a collateral to the bank, and the bank can loan you up to 90 per cent of the property value.

Image credit: Hodlnaut

In the world of cryptocurrency however, there are leverage of up to 100 times. Institutions might borrow from companies like Hodlnaut in order to margin trade, and use 100 times leverage in which they might gain or lose 100 times. This has fuelled the demand for cryptocurrency to be used for collaterals, with institutions willing to pay up to 20% rate for cryptocurrencies.

On the backend, what Hodlnaut simply does is to lend these cryptocurrencies out and share the premium earned with the users.

Getting started with Hodlnaut is easy – after registering for an account and completing your know-your-customer (KYC) process, you can just deposit your cryptocurrencies into Hodlnaut and start earning interest daily.

Currently, Hodlnaut does not allow direct dollars purchase of cryptocurrency, also known as fiat-onramp, on their platform and they only accept cryptocurrency deposits.

“Our current focus is in ensuring we get the best interest rates returns for our user’s cryptocurrencies and we are not focusing on providing and on-ramp solution. There are other industry players who are focusing on that problem now,” Juntao shared with Vulcan Post.

How are they any different from similar players

This model is not new as there has been several companies with similar offerings popping up over the past few years. Some of the most notable companies in this space includes Blockfi, Celcius and Gemini.

When asked how Hodlnaut compares to its competitors, Juntao shared that they currently offer the fairest and highest interest rates to their customers, as high as ten per cent on stablecoins — a term used to describe cryptocurrencies with their value pegged to the USD, and six per cent on bitcoin.

Cryptocurrency interest rate comparison as of May 2021
Cryptocurrency interest rate comparison as of May 2021 / Image credit: Hodlnaut

“Other than offering the best rates, we are based in Singapore, and we are a full Singaporean team. Our customers and users can be assured that they can reach out to us anytime and we are fully compliant with any regulatory requirement by the Monetary Authority of Singapore (MAS),” Juntao told Vulcan Post.

To date, Hodlnaut has over 5,000 users trusting them to manage over US$300 million in cryptocurrencies. This is 100 times more than what they were managing a year ago, and an even higher amount compared to what they launched with.

YearAsset Under Management
2019US$30,000
2020US$3,000,000
2021US$300,000,000
Hodlnaut asset under management grew by 100 times every year

While Hodlnaut boasts over US$300 million in asset under management now, things were not all rosy for Hodlnaut when they first started.

We started with my co-founder and I managing just under US$30,000 in asset management. As we grew, our corporate bank OCBC was shut down all of the sudden without any official reasons from the bank.

We received a call that our account will be closed down and we have to go and withdraw the money. I remember heading down to withdraw all the cash out from the bank, and until today, I remain a permanently banned customer of OCBC.

– Zhu Juntao, founder of Hodlnaut

Awaiting green light for crypto licensing in Singapore

With cryptocurrencies gaining more awareness and interest from Singaporeans, MAS has established its first regulatory framework to govern cryptocurrency services called the Payment Services Act, which came into effect on 28 January 2020.

Under the Act, cryptocurrency providers in Singapore will have to acquire a license and be regulated under the authority — this was finally passed in Parliament in January this year.

Juntao and his team is currently waiting eagerly for the licensing outcome from MAS which he has already filed. Companies without the Payment Services Act licenses are not allowed to operate in Singapore, although Juntao assured us that MAS had granted them an exemption to this.

While the process of getting the official license is taking longer than expected, Juntao feels that Singapore is a country that provides the best environment for financial companies to operate in, and is confident that they will receive the licensing application outcome soon.

With the company growing rapidly, the team is looking to release an iOS version of Hodlnaut so customers can track the value of their portfolio on-the-go.

The company is also exploring ways to help its customers gain access to higher yield products in the cryptocurrency space.

Featured Image Credit: Hodlnaut

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