Interview: Jason Blick, EQIBank – is DeFi the future of finance?
EQIBank brings together traditional and crypto finance for its customers, while its holding company’s fintech, EQIFi, is preparing to launch a range of decentralised finance (DeFi) products. Is this the future of finance?
EQIBank is an interesting hybrid, spanning standard digital banking and the world of cryptocurrencies. Alongside it is now a fintech, EQIFi, in the rapidly emerging decentralised finance (DeFi) sector. Is this upstart a one-off or is this what the face of finance will look like in the future? “We strive to be where the future is, connecting customers to the opportunities of today with premiere digital banking,” it claims.
The bank already claimed to be the world’s first global digital player (as opposed to country or region-specific digital banks) and provides services across 180 countries. It is a fully regulated traditional offshore player that is permitted to, among other things, provide custody for digital assets (as well as traditional assets), thereby giving clients the ability to buy and sell crypto while also offering digital asset-linked debit cards.
EQIBank was set up in 2015 with the specific aim of being the world’s first global digital bank, says CEO, Jason Blick. It wanted to offer more financial solutions to more countries than any other bank. Those services are standard across every country and are focused on corporations and high-net-worth individuals.
It now offers current and savings accounts, adding a multi-currency account of late; credit cards; lending, including cryptocurrency finance (using cryptocurrencies as collateral towards a cryptocurrency backed loan); custody; and a range of investment products. Most recently it added cryptocurrency OTC trading.
EQIFi was launched by the holding company of EQIBank. In some ways, DeFi can be seen as peer-to-peer lending on crypto-steroids. In fact the broad definition is any financial tool that eliminates the need for a centralised body. Blick says the launch followed close monitoring of the DeFi space over the previous two years. “It is really just an extension of P2P concepts but with more structure around it.” He adds: “From our perspective, bringing in a licensed institution brings a sense of safety and responsibility and we can offer products that are not already out there.”
The DeFi derivatives market really took hold in 2017 with Synthetix, a project that allows people to create decentralised blockchain assets pegged to other assets such as fiat cash cryptocurrency, as well as stocks and physical goods such as commodities. Other DeFi derivative platforms have followed, such as Hegic, Pulse and Mirror.
While still small in the great scheme of things (around $100 billion market capitalisation at present) and not yet well-known outside of this niche, Blick predicts rapid growth. “The numbers and acceleration are very exciting.” He believes, “people still have trust issues around centralised institutions such as banks”. It is also flexible. The DeFi derivatives markets allows anybody to create synthetic contracts pegged to other assets, in contrast to standard derivatives. It is maturing, with new products arriving in the last 18 months or so from various players.
EQIBank brings the benefits of a licensed institution to the DeFi sector and will be able to offer a range of products. In June, it plans to launch fixed and variable rate products, the first interest rate swap, and a yield aggregator offering that Blick says will be akin to a fund of funds product, underpinned by artificial intelligence and machine learning. By the start of May, EQIFi had received expressions of interest from 1500 people; Blick expects that to be 10,000 by the time of the product launch. EQIFi is banked by EQIBank and this will bring interoperability, bridging the cryptocurrency new world and EQIBank accounts.
What underpins EQIBank and EQIFi? In terms of technology, it has a cloud-based stack that is a mix of proprietary – its client management system, for instance, was wholly in-house built – and third-party. It uses Unido’s Insto crypto asset custody service and enterprise platform as its institutional partner for blockchain solutions. Unido Insto is described as a bank-in-a-box solution and uses the supplier’s fragmented key signing technology to support crypto custody and crypto trading products.
In terms of staff, Blick says EQIBank has fewer than 100, including its dedicated customer relationship managers. He feels a traditional bank in this space would have two or three times that number. The digital platform means scale is not an issue and efficiency is also driven by having standard products across the six lines of business.
EQIBank is now offering its platform on a Banking-as-a-Service (BaaS) basis, allowing third-parties to white label it. Blick says demand has been so high – largely by word of mouth – that it has pre-sold all of its licences until the beginning of 2022. One of the takers is Canadian conglomerate and fintech investor, Holt, to underpin its digital banking offerings. Holt’s new digital banking offering is powered by EQIBank.
Around 40% of EQIBank’s customers are from the UK and EU, 30% from North America and 30% from Asia, with the expectation that the latter region will increase to 50% by the end of the year.
The wider DeFi opportunities and challenges
Blick believes – in an age of negative interest rates – there is an opportunity here for banks but that it will be taken up by “nimble digital banks that are forward-facing” rather than traditional banks with legacy systems and old operating models. “Digital banks, by and large, are not making money,” he points out. They are focused on the retail market but DeFi could be a “genuine route to profitability”. This might then, in turn, see consolidation, with established banks buying the innovators rather than trying to enter the markets themselves.
Far from leaping in, traditional banks are showing caution. HSBC’s recent decision not to enable customers to purchase stock in Coinbase is a reflection of this. Blick describes the decision as “mystifying”, with the bank deciding which public stock its customers can and cannot buy. It is one reason why the DeFi space is exploding, he says. HSBC has form here as it had previously banned customers from buying shares in MicroStrategy, a company holding large amounts of bitcoin on its balance sheet.
HSBC is by no means the only bank taking a cautious approach. Big US players such as Goldman Sachs and Morgan Stanley know they need to embrace customer demand for digital assets and are somewhat less reticent. However, it is players such as Silvergate Bank in the US and ClearBank in Europe that have taken a more proactive stance when it comes to offering services to crypto businesses.
There is certainly a cloak of mystery surrounding this sector. “Technologists know what is going on, the rest of the world is looking at this and thinking, gosh, that’s complex,” says Blick. Among the mystified are regulators, he adds, which lack technologists within their structures.
Trust, ethics and security
Mention of regulators does throw up questions about trust, ethics and security in this new frontier. Perhaps those banks that are showing caution have a point.
With DeFi, people do not need to provide personal information such as proof of ID, previous bank statements, national insurance, or social security numbers. This is because DeFi projects do not need proof of identity or eligibility.
Another criticism is that blockchain transactions are irreversible, so that an incorrect transaction with a DeFi platform or even deployment of smart contract code containing errors can be hard to correct. The collapse last year of Yam Finance was a sobering one, blamed on a code error after it rapidly grew to $750 million in deposits.
EQIBank is registered in Roseau, in the Commonwealth of Dominica, and seeks to emphasise its regulated status. “Since we operate from an offshore centre, we know it is vital we are leading innovators in trust,” it states. Blick emphasises that the AML/KYC regulations are as stringent here as in all other jurisdictions.
It considered eight jurisdictions, including the UK, but felt that the East Caribbean was “extremely open to innovation and was taking a leadership position”. “Some smaller jurisdictions are more nimble and more attentive to market demand.” He cites the Bahamas, which has been quick to adopt a central bank digital currency. In Dominica “we have a great working partnership with that regulator”.
For EQIFi, it evaluated 30 jurisdictions before opting for the UAE. Bolstered by zero capital gains and zero corporate tax, the country is becoming a powerhouse for fintechs, says Blick, reflected in the hundreds that have already settled there.
On security, Blick points out that the four main players in DeFi to date have a market-cap of $6 billion and have not been hacked “to any degree”. DeFi companies are “tech and security businesses”. He adds that 40%of EQIBank’s spend is on technology and that features such as facial recognition and digital documentation recognition increase the security as well as onboarding times. “We have taken great strides to ensure we are secure from both a technology and regulatory perspective, they are equally important.”
Whatever the strengths and weaknesses of this rapidly emerging sector – and it could certainly do without more episodes like Yam Finance – it is likely to become more mainstream. The exploration by additional central banks of their own digital currencies is providing kudos, so too the US authorities’ backing of stablecoins, pegged to the US dollar. “When the Chinese central bank launches its digital currency, it could start to nibble at the heels of the US dollar as the currency of last resort,” predicts Blick.
The actual levels of trust and safety remain to be seen, so too the extent to which DeFi will grow from its current beginnings and will truly enter the mainstream. For now, it remains an enigma to many and that is certain to be one cause of current caution in a wider cryptocurrency and blockchain sector that has often made headlines for the wrong reasons. EQIBank and EQIFi are out there in this pioneer territory, seemingly making strides in their own right as well as seeking to be evangelists for this emerging sector.