Gianfranco Filice, the US-based venture investment partner at OVO Fund, has recently invested in Pledge Finance through his AKA Angel Fund.
Pledge Finance is an algorithmic crypto lending-borrowing protocol and a leading financial NFT marketplace on the Binance Smart Chain. We talked to Gianfranco Filice about his recent investment in Pledge and why he thought it was a prudent decision.
Q1: Welcome, Gian. It’s a pleasure to have you here. Can you please share your background with our readers? And tell us a bit about how you came to associate yourself with Pledge Finance?
Filice: Hello, I am Gianfranco Filice, currently a partner at the Californian pre-seed institutional venture capital firm, OVO Fund. I completed my graduation in 2020 from Stanford University with a BA in Economics. Before OVO, I was an analyst at Matrix Partners and McKinsey & Company. I also worked as an investment banker at Barclays and a product manager at Goldman Sachs. My primary interests include Web3, cryptocurrency, and FinTech.
I am always looking for promising Web3 projects and intend to support them during their early developmental stages. I believe Pledge has the potential to disrupt the financial sector through seamless liquidity transfer across the centralized-decentralized domain. The protocol solves some long-standing issues in crypto lending-borrowing and opens up the space for stable, long-term investments. So I thought it was important to invest in a protocol like Pledge.
Q2: What do you think are some major pain points in the crypto lending and borrowing domain?
Filice: In my opinion, one of the biggest challenges is the instability and unpredictability that comes with varying or floating interest rates. Most existing lending protocols provide loans based on dynamic interest that impacts borrowing costs and debt service levels. Interest rate volatility may be good for some users. But for others, it increases the risk component of crypto lending, which eventually leads to unpredictable routines in liquidity flows. And without a secure interest rate, users also run the risk of paying different penalties.
I think we need to understand that lending protocols offer floating or dynamic interest rates mainly for crypto day-traders. These traders only require short-term financing facilities since they borrow assets in real-time to make profits while trading. But presently, very few protocols offer fixed-rate interests necessary for long-term investments. Moreover, most crypto lending protocols do not provide opportunities for diversifying portfolios into non-crypto investment products without compromising their existing assets.
Q3: How can lending/borrowing protocols provide opportunities to a diverse set of crypto users?
Filice: So, as I was saying, the majority of existing lending-borrowing protocols cater exclusively to the requirements of day traders. Once these protocols start offering fixed interest rate loans, non-traders can also start borrowing to finance their long-term investments. This will lead to additional opportunities where non-trading crypto holders can take out loans to diversify their investment portfolios.
Right now, crypto users have limited options to redirect their digital asset liquidity towards non-crypto financial instruments. In most cases, digital token holders need to liquidate their existing assets to invest in equity, real estate, and commodities. So the utmost need of the hour is to hold and maintain one’s crypto portfolio position while simultaneously leveraging its liquidity elsewhere.
Q4: How would you place Pledge Finance against that backdrop?
Filice: I believe Pledge deftly handles most of the problems in the crypto lending-borrowing space. For example, it offers a fixed interest rate that equally benefits both lenders and borrowers through stable and predictable interests. Crypto asset holders can take out loans from Pledge to diversify their investment portfolios and foray into non-crypto asset classes. Plus, the protocol will soon integrate a marketplace to provide bitcoin loans that users can avail of without selling the bitcoin in their wallets.
Fixed interest will encourage more crypto users to borrow for long-term investments in a risk-free environment. Pledge will facilitate long-term crypto holders to continue holding and benefit from the potential liquidity of digital assets. Simultaneously, they can leverage their crypto liquidity to invest in non-crypto financial products for a well-distributed investment portfolio. I have a feeling that this free access of liquidity across the crypto and non-crypto sector will eventually strengthen Web3 as a whole in the long term. This means all kinds of crypto users, from traders to non-traders, will benefit from Pledge.
Q5: So Pledge is basically broadening financial access for non-traders. Can you tell us a bit about how this will impact the crypto industry in general?
Filice: I think the ramifications of crypto non-traders taking long-term loans at fixed interests are enormous. It will have far-reaching consequences and will eventually open up new ways of utilizing liquidity across the financial sector. I also firmly believe that market volatility will significantly come down, and investor confidence will get a boost from stable interest rates. I also want to take the opportunity to highlight two other factors which I think will ensure Pledge’s success.
First, the protocol runs on Binance Smart Chain that facilitates faster transactions at significantly low costs. Even if there is high network traffic, gas costs will never become unmanageable for an average crypto user. It will therefore be highly feasible to use Pledge for everyday financial activities.
Second, Pledge version 2.0 will facilitate the creation of financial NFTs for every loan, insurance, equity, and bond. Users can trade these financial NFTs across blockchains, unlocking new potential in the crypto trading domain.
Q6: Where do you see the blockchain cryptocurrency sector in the next couple of years? Can we expect any particular trend to become dominant over others?
Filice: Analyzing history can often help us predict the future trajectory of events. I think 2021 was in many ways a very important year for the blockchain crypto sector. We saw a record surge in NFT trading volume ($23 billion), as well as CeFi and DeFi trading volumes. Simultaneously, many mainstream corporations like PayPal and Visa have onboarded the crypto bandwagon. I’m pretty bullish for this trend to continue further into 2022, with even more mainstream adoption of crypto assets.
And if I have to pinpoint one particular trend that will gain momentum, it has to be NFTs. They will no longer remain just idle collectibles or in-game assets in users’ wallets. NFTs will enter the derivatives market and users will utilize them as financial instruments. One way or another, NFTs will shine even brighter in the near future. That’s what I think.