Arch Lending eyes tokenized stocks as next collateral market

Crypto lender Arch Lending plans to expand into loans backed by tokenized equities as the market for onchain stocks expands and lenders begin exploring new uses for the assets as collateral.

Arch co-founder and chief revenue officer Himanshu Sahay told Cointelegraph’s Chain Reaction podcast that the lender plans to enter the market “pretty soon,” pointing to a need for credit against tokenized stocks.

Sahay said tokenized equities have grown rapidly over the past year, but lending against the assets remains limited, and predicted that more lenders will enter the market.

He pointed to tokenized equities issued by firms including Superstate, Robinhood and Securitize, predicting that multiple lenders will eventually participate in the market to provide credit against the assets.

Source: Cointelegraph

Arch has already expanded beyond cryptocurrencies into tokenized real-world assets, launching loans backed by Paxos Gold and Tether Gold in recent weeks, according to Sahay.

But crypto still dominates Arch’s existing loan book, with Bitcoin (BTC) accounting for more than 80%, Sahay said. He added that the lender has recently seen growing interest in XRP as collateral, particularly among US borrowers.

Related: Kraken brings DeFi yield to tokenized stocks and ETFs

Tokenized stocks enter lending markets

Arch would not be the first lender to enter the tokenized equity credit market, with tokenized stocks and exchange-traded funds (ETFs) already entering lending and collateral products.

In February, Ondo Finance launched DeFi lending markets for two of its tokenized ETFs through an integration with lending protocol Morpho. Ondo’s tokenized versions of the SPDR S&P 500 ETF and Invesco QQQ can be used as collateral for borrowing on Ethereum.

Tokenized stocks are also beginning to find uses beyond dedicated lending markets. Kraken made 10 xStocks eligible to back futures and margin positions in July, while Coinbase’s B20 stocks launched on Base in August with price-feed infrastructure designed to support uses including DeFi borrowing and lending.

Tokenized equities. Source: RWA.xyz

The growth in lending use cases comes as the tokenized equities market itself has expanded sharply. Distributed tokenized stock value has climbed to about $3.15 billion from roughly $630 million a year ago, according to RWA.xyz data.