Financial institutions continue to look for ways to accumulate in the crypto market, and decentralized finance (DeFi) products are one of the mechanisms that can help them gain a share. Investors in DeFi products can earn a return on their capital By lending their cryptocurrency for interest.
But DeFi lending is much riskier than traditional lending, in part due to the volatility of the asset class. Just as “high-yield” bonds compensate investors with more cash to bet on companies with higher-than-average risk, DeFi lending can offer much higher interest rates than a traditional savings account where customers essentially lend their money to a bank.
Conduit builds a set of APIs that developers can use to build platforms that provide access to DeFi products. As Vice President of Product at crypto wallet BRD, which was acquired by Coinbase in November of last year, Conduit CEO and co-founder Kirill Gertmann faced the challenges of finding vendors that would provide the back-end tools his team needed to build a user-facing product. After a stint at Access Bank and half a year as Chief Product Officer at consumer fintech Eco, Gertman created Conduit to be the back-end solution he was looking for but couldn’t find.
“When you look at the fintech side of things, there’s really a huge pool that is built right to support that. You have Stripe, you have Marqeta if you want to issue cards — any use case you can come up with, you have someone with an API ready to give it to you,” Gertman told TechCrunch in an interview.
Conduit aims to be a one-stop shop for new banks and financial institutions to connect their products to the DeFi ecosystem, which Gertmann said is made easier because Conduit itself is regulated and compliant, easing the compliance burden for companies using its tools.
For consumers to earn DeFi revenue, their fiat currency is first converted into stablecoins, a type of cryptocurrency linked to the value of fiat currency, so it can be invested in various crypto protocols such as Compound and AAVE. Conduit offers two solutions to help companies access these returns.
The first is a growth dividend account, which new banks offer to customers so that they can invest their fiat currency in DeFi. The second is Conduit’s Corporate Treasury solution, which offers high-yield DeFi accounts for businesses.
“We do a ledger, and we do a lot of things that basically create a very simple package [our clients], so you don’t have to worry about complications, “like how to convert dollars into stablecoins or how to calculate rates,” Gertmann said.
Gertmann declined to name specific clients for Conduit, but said that they fall into two categories – new banks and small cryptocurrency exchanges, particularly in regions like Latin America. Gertmann said its biggest customers are in Canada, where its product was first launched, and Brazil, and it’s looking to expand into markets including the US and Europe afterward.
Gertmann said he sees two types of benefits from expanding on DeFi products. The first is access – DeFi protocols are not allowed, allowing any user to lend and borrow money without having to provide a credit score, identity verification, or collateral. The second is that DeFi connects users globally, allowing investors in countries with low or very negative interest rates to reap a higher return, and making it easier for companies to borrow money at favorable rates by drawing from the global liquidity pool, Gertmann added.
Conduit says it plans to triple its headcount, which is a long way off, over the next year across North America and Latin America and the Caribbean regions by hiring engineering, sales and compliance professionals with local knowledge. He added that regulation played a role that Conduit targeted, saying that a lack of regulatory clarity from the Securities and Exchange Commission (SEC) slowed Conduit’s entry into the United States.
to fuel its global expansion, Conduit has raised an initial $17 million round led by Portage Ventures, backed by Diagram Ventures, FinVC, Gemini Frontier Fund, Gradient Ventures and Jump Capital, the company announced today. A number of fintech executives, from companies such as PayPal, Coinbase, Google Pay, and others, also participated in the tour.
Conduit has high legal expenses to ensure compliance in all of its markets, so Gertmann decided the company needed to raise a “larger-than-average seed round,” he said.
“Obviously the market conditions helped us, we took advantage of that, and I’m not going to hide that… Even if there is a crypto winter or something like that, we can survive,” Gertmann said.