Earn Interest on your Crypto Assets?
By Ryan Weeks of THE BLOCK: A closer look at the UK’s latest high interest crypto account.
Ziglu has launched a new product paying an interest rate of 5% to bitcoin lenders.
The crypto startup, one of the few registered with the FCA, relies on unnamed third parties to generate yield.
The last time a London-based firm caused a splash touting a high interest crypto account, it didn’t last long.
Early last year, a crypto startup named Zeux splattered advertisements all over the London Underground suggesting that savers who were “losing interest” in their bank account ought to start earning 5% with a Zeux account instead. But then the Financial Conduct Authority, the U.K. regulator, intervened — and the ads quickly disappeared.
Now, there’s a new high interest crypto account in town.
On April 8, crypto wallet and card startup Ziglu unveiled its Bitcoin Boost product, promising annual percentage rates of 5% on bitcoin deposits.
According to reports, Zeux generated yield by taking pounds sterling, converting it into crypto and sending it to WeCash in Beijing — which then converted it back into fiat currency and lent it to borrowers.
With Ziglu’s Boost account, customers deposit bitcoin rather than fiat money. According to a press release, they can expect interest on the value of that bitcoin to be calculated “every second,” and interest will then be added to their balance each week. Customers can buy and sell the bitcoin in the account instantly with no penalties, according to Ziglu’s press release.
To understand whether an interest rate — be it 5% or 20% — is fair, investors must understand what level of risk they are taking on. This is as true for crypto lending as it is with more traditional peer-to-peer platforms. How is the company offering 5% interest generating enough yield to deliver that rate (while, presumably, keeping something for itself)? What protections does the investor have if something goes wrong?
Mark Hipperson, founder and CEO of the company, told The Block that Ziglu partners with “leading cryptocurrency lending platforms” which lend on the bitcoin that Boost users deposit.
“This generates a return, which we then pass back to our customers. All of our partners, and their borrowers, are subject to rigorous due diligence,” he added.
Bitcoin lending has become increasingly popular in the past few years. BlockFi, the New York-based startup and a pioneer in crypto lending, recently raised $350 million at a $3 billion valuation. But BlockFi is a different proposition for retail customers, in that the company lends their crypto directly to institutions — such as Fidelity, Susquehanna and Akuna Capital — which use it for arbitrage opportunities.
Ziglu wouldn’t identify its lending partners for “commercial reasons,” a spokesperson from the startup told The Block.
Asked why customers wouldn’t simply go directly to these unnamed lending platforms, the same person said the platforms are “B2B, which means that the customer wouldn’t be able to access them as an individual investor.”
In terms of regulation, Ziglu’s customers have more certainty. Ziglu is one of just three companies on the FCA’s cryptoassets register. To be registered, firms must comply with anti-money laundering and terrorist financing rules which came into force in January 2020. Only companies on this list will be allowed to operate in the U.K. beyond July 9 (the original deadline was January 10, but it was revised late last year after the regulator was overwhelmed by applicants).
The startup also has permission from the FCA to issue electronic money (e-money) and provide payment services.
Ziglu launched in June 2020 and has raised £11.4 million, predominantly from private investors and through the equity crowdfunding platform Seedrs.