Morgan Creek Digital Bets on Bitcoin-Backed Loans in Next Phase of Decentralized Finance

Morgan Creek Digital has joined a funding round for Atomic Loans, a Canadian startup that is developing Bitcoin and crypto-backed loans. The startup uses a protocol that combines the functionality of the two leading blockchains, Bitcoin and Ethereum, to enable lending without the involvement of banks, financial institutions or other middlemen.

Anthony Pompliano, partner at Morgan Creek Digital, says Atomic Labs is paving the way for more Bitcoin use cases – beyond trading, speculating or buying groceries.

“There’s a new alternate financial system being built around Bitcoin, with a focus on decentralization. Atomic Loans is building the decentralized financial infrastructure that uses Bitcoin how it was intended.”

The Atomic Labs team says an “atomic swap” has distinct advantages. The smart contract technology allows users to trade one coin for another, such as Bitcoin for Ethereum, without having to use a centralized exchange. It also allows users to avoid creating taxable events and enables crypto traders to lock their Bitcoin as collateral, retaining potential gains from a market rally or price increase.

“Using Atomic Loans, the process of taking out a Bitcoin backed loan requires just one on-chain Bitcoin transaction to lock collateral, and one Ethereum transaction to withdraw the loan.”

By effectively locking BTC in a non-custodial escrow on the Bitcoin chain, users can borrow an Ethereum stablecoin such as DAI or USDC.

The $2.45 million seed round was led by Initialized Capital with participation from Ethereum incubator ConsenSys, among other investors who target crypto and blockchain innovations and are betting that the DeFi movement will eventually have Bitcoin at its core, powering a parallel financial system.

Brett Gibson, partner at Initialized Capital, says Atomic Loans is leveraging technology to build a DeFi product that works on the Bitcoin blockchain directly without complex synthetics.

“As remarkable as the growth of DeFi has been to date, little or none of it works natively on Bitcoin. This leaves out what is far and away the largest and most valuable crypto-asset.”

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