Solana’s Portfolio Management Platform Friktion Launches Institutional Undercollateralized Lending

Friktion, Solana’s portfolio management platform launched in December 2021, has successfully attracted crypto-native and traditional institutions “managing up to $60 billion in AUM who seek to access leading risk-adjusted and transparent yields on DeFi.”

Friktion Institutional is “a new arm of the protocol aimed to accelerate the momentum of institutions adopting DeFi infrastructure and portfolio management.”

Friktion Institutional Credit, the new division’s first product, “unlocks access to a diversified source of returns in DeFi with fixed income.” As the crypto credit markets mature alongside the addition of more sophisticated participants, Friktion aims “to capitalize on this burgeoning market opportunity by leveraging a robust and decentralized risk management framework with institutional-grade infrastructure.”

Ken Chia, Head of Friktion Institutional, said:

“It is evident that there is a growing demand for institutional crypto credit. In order for the market to mature, however, there needs to be a more sophisticated solution that offers a robust yet transparent infrastructure for institutions – with an emphasis on lender seniority, clear credit underwriting standards and risk management.”

The total crypto lending market is “still in its infancy stages, comprising <0.01% of the global debt market valued at $123 trillion (as of June 2022).” The current solutions “offered by both centralized (CeFi) and decentralized (DeFi) platforms present inherent trade-offs.”

CeFi lending platforms “provided capital efficiency by providing undercollateralized loans to borrowers.” However, risk management standards and transparency “vary between platforms, which in some cases have led to large write-offs and bankruptcies of these platforms.”

On the other hand, DeFi lending protocols “democratized access to credit to anyone with an Internet connection and a wallet address.” The overwhelming majority of DeFi debt markets today “are overcollateralized, requiring borrowers to put up more collateral than they seek to borrow.”

For institutional participants seeking capital efficiency, “this presents a significant barrier to participating in the DeFi ecosystem.”

In an environment where overcollateralized DeFi lending yields remain compressed, there is “a rising demand for smarter risk-adjusted yields in the undercollateralized credit space with institutional-grade structures, reporting, and risk-management.”

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