The worlds of traditional finance and cryptocurrency are coalescing. While banks in countries such as Russia and Switzerland have launched cryptocurrency services, and JP Morgan (NYSE:JPM) has developed its own digital asset for transfers between institutional clients, fintech startups are offering products typically associated with banks: loans and savings accounts to name just two.
Several digital banks have also started providing users with all-in-one wallets for both virtual and fiat currencies, with the ability to transfer one for another in real-time. PayPal (NASDAQ:PYPL), meanwhile, recently integrated with crypto exchange bitFlyer Europe to further bridge the gap.
Ultimately, the beneficiaries of such convergence are consumers, who can choose from a wider range of payment options and financial products.
Bringing Simplified Savings to Crypto
Of course, a significant percentage of digital asset holders – particularly bitcoiners – take the long view and HODL in anticipation of their portfolio rising in value. It is for such users that Pokket was created. Launched last year by a collective of professionals from the worlds of finance, software and web development, including alumni from Citigroup, Morgan Stanley and Microsoft, Pokket is ostensibly a savings account for digital assets, enabling users to earn high-interest returns on their cryptocurrency.
“We developed our product in a way that is simple to use for everyone,” explains Pokket CEO Bill Dashdorj, whose background is in banking. “Basically we took a complex but commonly available product in traditional finance, structured savings, simplified it and brought it over to crypto. We also have an auditable cold wallet for collateral, verifiable by anyone, which provides total transparency compared to cefi blackboxes.
“With Pokket, retail investors can take advantage of market volatility from as little as $3. There are companies that started offering similar structured products in crypto, such as Binance, but only on BTC and ETH. In contrast, we offer interest earnings on over 65 different tokens including most of the top defi tokens and the major established assets.”
Taking advantage of market volatility might sound worryingly like high-level trading to some users, who are more accustomed to depositing fiat savings in their bank, or borrowing if times are tough. Not everyone, after all, is comfortable with the idea of playing the markets.
“For people who are not willing to take such risks, we’ll soon be introducing a simple lending product,” assures Dashdorj. “Of course, the interest earned by this new product will be lower than our current product, but we’ll do our best to price it competitively.”
Making the Most of Market Volatility
According to Dashdorj, users of Pokket’s flagship savings product can earn anywhere between 2.6% and 501% interest on their cryptocurrency depending on market conditions, with support for dollar-pegged stablecoins recently introduced. Little wonder the platform has witnessed $3 million of deposits in the past four months.
As has been seen in various countries, interest rates offered by banks can sometimes go negative, meaning customers – far from earning a passive income on their savings – pay for the privilege of banks holding on to their funds. President Trump has in recent times called for the Federal Reserve to lower interest rates into negative territory, a move he feels would boost spending. The logical question to ask, then, is how Pokket is able to offer such generous yields at all – the sort that puts fiat savings accounts and government bonds to shame.
“Our structured saving products are designed to offer higher interest with more market volatility,” explains Dashdorj. “By structured, we mean the outcome of the saving is tied with the price and volatility of the asset. Depending on the weekly price movements of the asset, the saving can mature in the original token you saved, or in the token pair you selected at the start of your saving.
“So the higher the risk of your saving not maturing in the original token you’ve saved, the higher the interest rates. The interest earning is paid no matter what, so the risk associated is mainly market volatility.”
Exploring Yield Opportunities and Appeasing Regulators
As crypto-based savings alternatives such as Pokket, BlockFi, and Nexo become more widely used, traditional systems that are experimenting with blockchain and digital assets may try to compete. Ironically, the structured savings product described above is “based on a commonly available structured product in traditional finance,” says Dashdorj. “We’re not really reinventing the wheel. We’re only making the wheel run smoother and faster.
“As the crypto space matures, we expect the yields to drop across structured products, as it is the very nature of markets to arbitrage returns. We see this as an advantage – our team is very well-equipped to design and release new products as the industry evolves, given our rich experience in finance. We’ve only scratched the surface of what is possible for unique yield opportunities.”
Pokket’s popularity stems from its wide range of supported assets and high interest rates, but there is another benefit for some users: the lack of Know Your Customer (KYC) implementation, a non-negotiable for privacy absolutists. As in the decentralized finance (defi) world, users don’t need to provide personal information to start saving – just an email address. That particular perk may only be short-term, though.
“Although crypto is attractive to many people due to its anonymity and simplicity, and we wanted to embrace this core concept and develop on it, the industry changes fast and KYC requirements are becoming the norm. So we are currently working to add KYC requirements very soon.
“I am sure that we will lose some of our existing customers, but I’m also confident that the majority will embrace the change, as the regulatory environment of crypto is continually changing. Coinbase, for example, recently had to lock clients out of their own funds due to an association with BitEX, and we want to prevent this control of capital when funds are moved beyond Pokket in the future.”
The Long Road Ahead
By bringing saving capabilities to crypto, Pokket is doing its bit to give digital assets greater utility and inspire confidence among users. Dashdorj sounds an optimistic note when reflecting on the recent past, and the challenges that lie ahead: “We’ve come a long way since the first transaction of Bitcoin a decade ago to creating various investment products with cryptocurrencies such as NFTs. But we still have a long road ahead of us to be able to do everything that is possible in traditional finance with crypto.
“We need to build more great products, and at Pokket we are doing just that by bringing new products to the market. But we must do more. If traditional financial institutions are able to do with crypto what they can do with legacy systems, there’s no reason for them to not start adopting crypto into their daily operations.”