Wealthy investors who hold much of their fortune in crypto are increasingly turning to decentralized finance platforms to secure flexible credit lines without selling their digital assets. Firms like Cometh help family offices and other rich clients navigate complex DeFi tools, using assets such as bitcoin, ether and stablecoins to replicate traditional Lombard-style collateralized loans. DeFi loans can be faster and more anonymous than traditional bank credit but carry volatility and liquidation risks, and Cometh is also experimenting with applying DeFi strategies to traditional securities via ISIN-based tokenization.
Let’s say an investor has a house in Switzerland and a beach house in Miami. They’re worth, perhaps $10 million. But what they are really looking for right now is a line of credit for some time on the slopes at St. Moritz, a trip to the Cannes film festival and a few upgrades to the yacht. In traditional finance, they might be able to approach their bank and use those assets to secure a flexible, short-term loan. However, if a substantial part of the investor’s assets is in crypto, it’s likely much harder. This is when a sophisticated decentralized finance (DeFi) lending strategies comes into play, said Jerome de Tychey, the founder of Cometh, a DeFi-for-businesses facilitator that recently became one of the few firms in France to gain a Markets in Crypto Assets (MiCA) license.
On a day-to-day basis, wealthy clients often use collateral loans, also known as Lombard loans or Lombard credit, to secure loans against their assets. These are flexible, short-term loans secured by the pledge of assets such as stocks, bonds, or investment portfolios. They allow borrowers to access cash quickly without selling their investments, thereby avoiding capital gains tax and retaining benefits such as dividends.
De Tychey, who is also the founder of the Ethereum Community Conference (EthCC), said his firm adds a DeFi component to the equation that could involve bitcoin on Aave, USDC on Morpho, or perhaps providing liquidity on ether to BTC on Uniswap, for example. For someone who is crypto native, they could simply take their ether ETH tokens, add them to a lending platform like Aave and withdraw stablecoins. Borrowing using crypto assets also offers perks, such as a faster lending process. For example, a loan backed by bitcoin could be processed in as little as 30 seconds on some platforms, whereas a Lombard loan, using traditional assets as collateral, at a private bank might take up to 7 days.
It also has some drawbacks. For example, crypto loans depend on counterparty risk and could be more volatile depending on the price of the crypto asset. However, it all comes down to using an investor’s crypto asset to secure a loan through a faster, more seamless process, rather than going to a traditional bank, where crypto might not be considered an asset to borrow against. Having snagged a MiCA license in France, Cometh is also working on ways to use DeFi strategies for stocks, bonds and derivatives using their identifying International Securities Identification Numbers (ISIN). To access debt using an account holding Tesla shares, for instance, ISIN-based codes need to be held in a dedicated fund, de Tychey said. We are looking at these sorts of approaches done through dedicated private debt products that anyone with a title account can access. So that’s a way of doing tokenization but the other way around; it’s really a kind of ‘tradfi-cation’ of DeFi, de Tychey said.
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