Avalanche Allows Tokenised Treasury Holdings to Secure Loans and Trades

ZeroBeta and Lynq have brought together their institutional systems on the Avalanche blockchain to enable tokenised US Treasuries to be used as collateral for secured lending and crypto asset trading purposes while earning interest. A report dated October 27 said that the tie-up links Lynq's settlement system with ZeroBeta's BlueShift risk management software, which enables banks to make collateralisable asset pledges without moving such assets out of the system. The integration will utilise Lynq's collateral lock function, which keeps assets under escrow as they earn interest.

ZeroBeta and Lynq Combine Risk Management With Blockchain-Based Collateral Settlement 

As per the announcement, BlueShift manages collateral requirements and monitors margin, while Lynq handles the actual pledging and release of assets. The companies said the arrangement would allow institutions to access financing and support trading positions using assets they already hold, without having to give up the interest those holdings generate. 

Under this new arrangement, tokenised Treasury holdings can be used for both secured borrowing and margin trading through the same collateral management system. Secured borrowings will see BlueShift instruct Lynq to lock in the Treasury collateral on behalf of the lender. The collateral value is then monitored by the platform against predetermined levels and can make a call to either add more collateral or unlock some of the existing pledge.

The same principle applies to trading of digital assets, whereby BlueShift determines the margin needed for the existing positions and the new orders. Treasury assets that qualify can be used as collateral for the margin needs, and Lynq executes the instruction directly on its settlement network. These transactions are executed via Lynq's Avalanche infrastructure, thereby ensuring that the pledged assets remain on the same network throughout the transaction. 

According to Jerald David, CEO of Lynq, it should not be hard for institutions to either make their asset holdings serve as collateral or continue earning from them at the same time. David indicated that through the collaboration, institutional clients who qualify for holding can hold their assets within Lynq while also utilising them for loan or trading purposes. Varuna Wijesundera, CEO of ZeroBeta, stated that collateral management is among the many real-world uses of tokenised assets for financial institutions. 

In April, the US-based crypto exchange, Coinbase, also introduced crypto-backed USDC loans for users in the UK, which allow users to borrow USDC stablecoin against Bitcoin, Ether, and Coinbase Wrapped Staked Ether (cbETH) with up to 3.5 percent APY in USDC rewards automatically integrated for Coinbase One members. Coinbase added that borrowing costs can change frequently, which is why interest rates are variable and are set by Morpho based on market conditions on Base.