Dakota Emerges From Stealth to Provide Bank-Like Services to Crypto Depositors

Dakota will offer returns on a lending basis through decentralized finance protocols to overcome the disadvantages of centralized lenders.

The company was founded by former Airbnb, Anchorage, and Coinbase executives.

It is intended for businesses that will pay a monthly fee.

Dakota, which describes itself as a crypto bank that seeks to right the wrongs of centralized lenders like Celsius and BlockFi, emerged from stealth on Wednesday.

Founded by a group of former Airbnb, Anchorage and Coinbase Custody executives, the company offers treasury management, lending and payments services to businesses that pay a monthly fee and gain access to a platform that allows them to lend out their deposited cryptocurrencies via various decentralized finance (DeFi) protocols.

CEO Ryan Bozarth said the model differs from previous centralized crypto lenders like Celsius Network, which filed for bankruptcy in July 2022, and BlockFi, which followed suit four months later. In those cases, the companies were at the center of the process: taking deposits, lending them out and collecting a fee on the interest payment.

At Dakota, customers make the decision to lend and choose which decentralized finance (DeFi) protocol they want to use. Monthly fees range from $150 to $1,500, and customers who choose to lend their deposits can earn up to 9%. Stablecoin holders will earn a yield based on U.S. Treasury Bonds.

“The big difference for us is that we only lend through DeFi protocols, so it’s not centralized lending,” Bozarth, who was previously CEO at Coinbase Custody, said in an interview. “DeFi protocols, I agree, there’s some risk associated with that, but at least it’s a transparent risk, smart contract risk.”

While Dakota may seem like an innovative idea that solves a problem, the crypto industry is still licking the wounds it suffered during the collapse of companies like Celsius, BlockFi, and FTX.

Celsius filed for bankruptcy in July 2022 despite having $12 billion in assets under management two months ago. The company’s predicament stemmed from setting an overly ambitious 17% yield, which led the firm to use newer, riskier blockchains like Terra. An eventual bankruptcy, like BlockFi’s, left hundreds of thousands of creditors in the dark about whether their invested funds would be returned.

Stating that greater transparency is provided with DeFi, Bozarth cited the DeFi lending protocol Aave as an example.

“If you look at the recent decline, [Aave] “They have performed brilliantly because everyone knows that there is no bargaining chip, if you meet that target you will be liquidated and so they have performed phenomenally, whereas the central lenders have not been able to do that.”

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Dakota also offers fiat market dollar transfers, deposits, and withdrawals. These services are designed for treasury management purposes and all dollars deposited on the platform are backed by US Treasuries.

One of the biggest hurdles for US-based crypto companies is creating a product that can adapt to the varying levels of regulation across jurisdictions. Last year, Coinbase (COIN) was forced to launch an offshore arm of its company due to restrictions in the US

Dakota’s dollar-based services typically require money transmitter licenses (MTLs) in each state. The company will get around this by using a third party that has an MTL where needed in the U.S. In Europe, it plans to have a Virtual Asset Service Provider License (VASP), and each region will have its own regulatory and compliance requirements, some of which Dakota will create in-house and use third parties for the rest.