How Crypto Tycoons Grow Their Wealth: DeFi Borrowing and New Financial Instruments

The rapid growth in the cryptocurrency world has not only increased the value of digital assets but also raised new questions about how this wealth is managed. According to studies conducted last year, the global crypto millionaire population reached 241,700, showing a 40% increase. So how do these wealthy individuals obtain the liquidity needed to upgrade their yachts, attend the Cannes Film Festival, or spend time on prestigious slopes in St. Moritz? The answer comes through new opportunities offered by decentralized finance (DeFi) platforms.

Getting Rich in Crypto: Limitations of Traditional Finance

In the traditional banking system, high-net-worth individuals (HNWIs) turn to Lombard loans to access cash without selling their assets. This method provides flexible, short-term loans secured by assets such as stocks, bonds, or real estate. The borrower retains their investments and avoids capital gains taxes.

However, for the wealthy who hold a large portion of their wealth in digital assets, the situation is different. Traditional banks are hesitant to accept cryptocurrencies like bitcoin or ether as collateral. These crypto-rich investors do not want to sell their assets because they believe in their long-term growth potential. This is where DeFi borrowing strategies come into play.

Companies like Cometh facilitate this process. Jerome de Tychey, founder of Cometh, provides guidance to family offices and high-net-worth clients on complex DeFi tools. According to Tychey, wealthy crypto holders can use platforms like Aave to collateralize their ether tokens and borrow stablecoins. However, this process can be complicated for those unfamiliar with DeFi. “We developed this service to provide borrowing lines for high-net-worth clients like family offices,” Tychey explains at the CfC St Moritz crypto conference.

DeFi Loans vs Traditional Lombard Loans: The Choice for the Wealthy

DeFi borrowing offers different advantages and disadvantages compared to traditional financial instruments.

Advantages: Speed is a significant benefit of DeFi loans. A bitcoin-backed DeFi loan on some platforms can be processed in as little as 30 seconds, whereas Lombard loans at traditional banks can take up to 7 days. Additionally, DeFi loans do not require credit checks or tax declarations. On some platforms, the principle of “code is law” applies, and the borrower’s identity becomes irrelevant. This makes it an attractive option for the wealthy seeking privacy and speed.

Disadvantages: However, DeFi loans carry serious risks. The prices of bitcoin and ether can be highly volatile. If the value of a digital asset suddenly drops, smart contracts may automatically liquidate the borrower’s collateral. This could result in the investor losing the crypto assets they put up as collateral. There is also counterparty risk; if the platform is hacked or collapses, the customer’s funds are at risk.

Cometh’s approach aims to minimize these challenges. The company suggests various DeFi strategies, such as using Bitcoin via Morph, USDC on Aave, or providing liquidity between Ether and Bitcoin on Uniswap. This diversification helps spread risk.

The New Era of Tokenization: Corporate Adoption of DeFi

Recently, Cometh obtained a Crypto Asset Markets (MiCA) license in France, marking a significant development in the sector. The company is exploring ways to use DeFi strategies not only for crypto borrowing but also for traditional financial instruments.

Tokenization based on International Securities Identification Numbers (ISIN) is central to this mission. For example, an investor holding Tesla shares can tokenize these assets with ISIN codes and hold them within a private fund. This allows anyone with a traditional securities account to access DeFi-based borrowing products.

Tychey explains: “We offer these approaches through specialized lending products for all types of accounts. Essentially, this is another application of tokenization; a phenomenon akin to the ‘mainstreaming’ of DeFi.”

These developments increase financial flexibility for crypto-rich individuals while blurring the lines between traditional finance and decentralized finance. In the future, DeFi tools could become as natural and accessible for ultra-high-net-worth individuals as financing their yachts or planning luxury vacations.