Bitcoin miners are queuing up to borrow from a special purpose decentralized finance (DeFi) lending pool created by Maple Finance, as a stressed out crypto industry explores creative ways to get through the bear market.
Since Maple and credit agent Icebreaker launched the miner finance pool a month back, a pipeline of about six to 10 mining companies is in place to form the first cohort of borrowers, with another 25 on the waiting list, according to Maple Finance CEO Sidney Powell.
Mining companies, many of which are already burdened with debt, are feeling the chill of the crypto winter as the price of bitcoin languishes around the $20,000 mark and the cost of electricity rockets. Most recently, Compute North, one of the largest data centers that host mining computers, filed for bankruptcy, citing market conditions as one of the reasons.
With crypto asset prices down and bitcoin falling more than 50% this year, capital from usual sources has completely dried up. Given the capital-intensive business model of the crypto mining business, miners are looking for alternatives, and private credit seems to be offering new and creative ways to help firms that are under stress, said Powell.
There are strings attached, of course. Interest rates are going to be around 18%-20% and the loans are being offered on a “full recourse” basis, which will require a guarantee over all the assets of a miner – not just mining rigs, but also property and power equipment – should they default or seek bankruptcy protection. A lack of full recourse loans has meant some lenders to the mining sector have got into difficulty, Powell added.
“The sector needs liquidity, so we are figuring out creative ways to assist,” Powell said in an interview with CoinDesk. “Typically, the firms you would want to underwrite are those with low levels of debt on their balance sheet, and who have things like power purchase agreements in place, so effectively a longer line of sight on what their electricity will cost.”
A $300 million target
Powell said Maple has received the first $10 million-$12 million of commitments so far and he expects the pool to reach its $300 million cap by around the middle of next year. Borrowers include a mix of large publicly traded firms and some smaller private ones with locked-in power agreements and have innovative ways of cooling the mining rigs.
Previously, a common loan structure for mining firms was either bitcoin-backed loans or non-recourse loans against ASICs – the specialist mining equipment used to earn bitcoin. Under these terms, when a loan is not performing, the borrower can hand back the ASICs to the financier and walk away from the loan.
“[That’s what we don’t want to happen [with Maple’s lending pool]. Mining equipment is subject to wear and tear and the value of ASIC can fluctuate even more than bitcoin. To avoid this, Icebreaker’s loans will be full-recourse,” Powell said.
Maple isn’t the only company looking to capitalize on opportunities for lending to struggling crypto miners. Most recently, Binance Pool announced its own $500 million lending fund for bitcoin miners. Meanwhile, crypto billionaire Jihan Wu – the founder of bitcoin mining rig maker Bitmain – was reported to be setting up a $250 million fund to purchase distressed assets from mining firms.