Invest(igations) in DeFi
Building a crypto practice by first being interested, dabbling and going deeper, then getting excited before pushing all-in
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Another year, another Super Bowl in the books. We got a very strong, pure hip hop halftime show, a reasonably entertaining game, and enough memes to power us through spring. Pretty much all you can ask for, unless you’re a Bengals fan. But at least one good thing happened to Southwest Ohio this weekend, and that was Cincinnati native Katherine Kirkpatrick Bos appearing on the IF:Then podcast! Katherine is the newly appointed General Counsel of crypto-lending protocol maple.finance after the career as a seasoned investigator at King & Spalding LLP.
The NFL is no stranger to investigations - the existence of the New England Patriots alone has sparked several high profile “gate”-suffix incidents. And let’s not even get into the dumpster fire that is the Washington Commanders. Whether you’re a massive sports league or a 20 person startup, if you receive a subpoena, are faced with a whistleblower, or generally find yourself in a position where you need to understand “what’s going on” internally, you might call someone like Katherine.
Legal Strategy
Katherine’s career as an investigator set her up to help Maple define crypto capital markets.
Building a career in investigations is an ideal role for the fact-finders among us. You pick up significant skills in how to plan, prepare, execute, and adapt. The problems tend to be centered more on human interaction than legal jurisprudence. As an investigator you often find yourself working in the context of regulatory regimes, domestic, international, and cross-border. Learning new industry and regulatory environments on the fly is really what keeps an investigations practice interesting. You need to dive deep and you need to do it quick. Katherine channeled an internal drive an efficiency to see that this practice was suited to her, and relentlessly pursued it.
But a successful career in BigLaw is not the focus of an ideal IF:Then interview. Katherine walks us through how as a partner focused on investigations, she became intellectual curious about crypto, started writing about it, and helped form a fintech/blockchain working group at her firm. Diving in helped her start to see the demand for legal services up close, and she saw an opportunity to pivot into a fast-growing niche she found interesting. The first step was to just start doing - she took on smaller matters continued writing and networking in the space, and went from interested to excited like many who have tumbled down the crypto rabbit-hole.
That progression led to Katherine joining Maple Finance as General Counsel to develop the protocol’s legal strategy. Maple’s goal is to become the dominant institutional capital network for crypto. Undercollateralized lending has yet to be effectively utilized at scale in crypto, but Maple is one a few companies tackling this problem head-on by putting together a smart-contract platform that facilitates institutional lending interactions between borrows and lenders - generally with sophisticated institutions on both sides of the transaction.
On the Lending side, a business can earn yield on stable coins for example by depositing them in a Maple smart contract. Those lenders receive MPL token in return which automatically generates interest returns. If the lender wants to take on additional risk, they can stake that token, which will give them greater yields, but means that they will be first-risk capital in the even of a default.
On the other side are institutional borrowers. These are generally sophisticated crypto-native entities — hedge funds, traders, who use the debt capital to fund their operations. Because these loans are undercollateralized, these entities need to be KYC’d, vetted, and underwritten, in order for the protocol participants to be able to determine the likelihood of default and risk to the return on assets in the pool.
Lastly you have Pooled delegates - effectively a set of underwriters incentivized by protocol tokenomics to assess the creditworthiness of borrowers. They are able to do this in part because the Maple protocol KYC’s the borrowers, lenders, and the delegates themselves.
While undercollateralized lenders like Maple and Goldfinch are currently limited to institutions and/or accredited investors, you can see the tracks being laid to bring crypto more into the mainstream. Even if the process needs to include things otherwise anathema to crypto like KYC and underwriting, it opens the door to so many more users who may need to borrow funds. The biggest difference between this and the traditional system is the value capture. Without a bank soaking up the returns from lending, we’ve opened the door for people who want to earn stable fixed-income yield on their assets. DeFi resets the ownership paradigm at play in finance, and this seems to be only the beginning. We will see new products, new avenues for yield, new possibilities for financial instruments, and new aspects for risk. It should be a fun ride, and IF:Then will be there along the journey to help.
Until next time, friends - David Ikenna Adams
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