Episode #67: Meet the Startup Unlocking Crypto-Backed Loans

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  Samantha Herrick:
  This is a podcast brought to you by Alumni Ventures, a show where we tell you the stories and creators of tomorrow. Welcome back, everyone, to The Tech Optimist.

  Dhruv Patel:
  But then if you zoom back, what Arch is really focused on is building a next-generation wealth management, private banking platform for people with alternative assets, and really looking to redefine financial services.

  Himanshu Sanay:
  And the reason for that really is in the last 15 years, people’s asset allocations have changed from stocks, bonds, and real estate into being heavily invested in crypto, and they’re at a disadvantage when it comes to accessing traditional financial services at their banks or other platforms they use.

  Samantha Herrick:
  That is Himanshu Sahay and Dhruv Patel, CTO and CEO of Arch Lending.

  Mike Collins:
  40 to 60 million Americans now have crypto assets of some kind, right? So this isn’t a rare phenomenon anymore.

  Samantha Herrick:
  And that is the man who needs no introduction, your podcast favorite—Mike Collins, co-founder and CEO at Alumni Ventures.

  There is a YouTuber that I came across this past week while editing this episode called Hack Crypto on YouTube. In the first week of October, he released a video on Arch Lending.

  And that’s me—my name is Samantha Herrick. I’m the guide and narrative writer for this show.

  Okay, let’s take a second to introduce our startup for today, Arch Lending. We have two of their C-suite members here today—the CTO and the CEO. We just introduced them, and you’ll hear more from them in a moment.

  But first, let’s dive into the business itself before we hop into the conversation.

  Arch Lending is a New York-based FinTech startup that provides crypto-backed loans.

  They were founded in February 2022, based in New York City, and operate under a U.S. State Lending license in 32 states.

  Here’s what they offer: crypto-backed loans using Bitcoin, Ethereum, and Solana as collateral, with loans available in Fiat USD and USDC stablecoins. They also offer startup equity-backed loans for employees of select high-growth companies.

  Some key features that make this company stand out:

  • Assets are stored in qualified custody through BitGo.

  • $250 million insurance policies on client funds.

  • Loan-to-value ratio of up to 90% for crypto-backed loans.

  • Maximum loan terms of 12 months.

  • Fixed interest rates typically around 12%.

  In August of this year, Arch Lending raised $75 million in funding: a $5 million equity seed round led by Morgan Creek Digital and Castle Island Ventures, and a $70 million loan financing facility provided by Galaxy Ventures.

  Arch Lending’s business model is to provide a secure, regulated platform for crypto-backed loans, targeting both individual and institutional investors. They emphasize security, compliance, and customer service as key differentiators in the crypto lending space.

  Looking ahead, they plan to:

  • Expand their loan financing facility.

  • Potentially introduce self-repaying loans.

  • Launch additional investment products, including a basic trade solution.

  They position themselves as a trustworthy alternative in the crypto lending market, focusing on regulatory compliance and security to address concerns stemming from recent high-profile collapses in the industry.

  Before we get into the show, we’re going to hop into an ad and a quick disclaimer. Hang tight—we’ll be right back.

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  Samantha Herrick:
  As a reminder, The Tech Optimist podcast is for informational purposes only. It is not personalized advice, and it’s not an offer to buy or sell securities. For additional important details, please see the text description accompanying this episode.

  Okay, so we’re taking a slightly different approach for this episode. Normally, I’d just hand the mic off to Mike or whichever AV host is running the interview.

  But I’m someone who doesn’t delve into Bitcoin, Ethereum, Solana, ETFs, or crypto in general. I often have a hard time understanding what it means, how it works, and how it actually applies to real-world situations.

  If anyone listening feels the same way—someone trying to educate themselves on this topic—there’s a YouTuber called Hack Crypto on YouTube who, in early October, released a video on Arch Lending and how their platform works.

  He made a video demo showing the four-step process of taking out a loan and highlighted how well-designed and well-cultivated Arch Lending’s platform is.

  Disclaimer: he notes in his video description that he’s not a financial advisor and this is not investment advice—he’s just educating and entertaining people with crypto content.

  I’m going to play bits of that video because I think it’s great to hear another content creator talk about today’s guests and their platform. It’ll be cool to first learn about the technology and then hear from the people who actually designed and built it.

  So without further ado, let’s hop into that video, and then we’ll move into the interview.

  Hack Crypto:
  In this episode, I’m going to be going over a full demo of Arch, the lending platform that allows you to borrow against crypto assets—specifically Bitcoin, Ethereum, and Solana.

  What I love about Arch is that it’s simple to use, very similar to BlockFi. It has a great design, is very intuitive, easy to navigate, and everything is laid out in simple terms.

  When it comes to financial instruments, it’s very important to understand all aspects of what you’re getting into. With 60% loan-to-value ratios, partial liquidations, margin calls, and fluctuations in the underlying asset you’re borrowing against, it’s crucial to understand what’s involved.

  When dealing with volatile crypto assets like Ethereum or Bitcoin, you need to fully understand the risks and processes. I like how Arch has laid this out, and I’m going to show you the signup process all the way to setting up the actual loan. My favorite part is the explanation screen—it’s very clearly laid out and lets you adjust the loan numbers on screen before moving forward.

  There are a lot of important considerations here. First, know upfront that when you do a loan like this, it’s for personal use. Individual use is different from business use due to banking rules and regulations.

  So for anyone signing up, if you take out a loan as an individual, you’ll need a personal bank account. If you’re a business, you’ll need to select the institutional option on their platform, which is a different process.

  In a previous video, I covered Arch right after they raised $75 million in a mix of equity and debt to accelerate collateralized lending.

  Since then, many people have asked: Why would you do a 15%, short-term, 12-month loan on Bitcoin or Ethereum?

  A few key things to know: this is not a taxable event. It’s debt. You’re borrowing against an asset you own and taking a debt note against it. That alone is extremely valuable.

  If you liquidate an asset—say you sell one Bitcoin—you no longer own it, you have the cash, but you owe taxes on the transaction (around 20%, depending on holding period). With a loan like this, that tax event doesn’t happen.

  So if you think of selling and paying 20% tax, borrowing at 60% LTV is effectively closer to an 80% LTV alternative. It’s important to weigh these options. Arch is legitimate in the U.S. and highly secure.

  Another question people ask is: What if my credit isn’t good? There’s no credit check required. You do have to verify your identity because of the Patriot Act and U.S. regulations, but there’s no credit score involved.

  Identity verification is fast—typically same-day—and you can receive funds within that time. Loan terms are up to 12 months, with a 14–15% interest rate depending on the LTV.

  It’s crucial to understand that when borrowing at 14–15%, you must ensure that whatever you’re doing with the borrowed funds offsets that cost of capital.

  Put another way: if you’re borrowing against an asset with a 15% interest cost, you should be investing that money into something with a return higher than that—like a business investment with uncapped returns.

  Use these tools only after you fully understand them. This is not a sponsored review by Arch. I reached out to let them know I’d be making this video, and they said, “Awesome.” But this is not a sponsored transaction.

  I’ve used the platform myself, and I’m excited about what they’re doing. So let’s jump on their website and I’ll show you the full end-to-end process.

  All right, it’s demo time.

  There are four phases to setting up a new loan on Arch:

  1. Configuration: Enter all the necessary information to structure your loan. For example, we’ll select our location as Florida.

  2. Payback Period: Loans can be set up for any term up to 12 months. Currently, 12 months is the maximum, but that may change in the future.

  3. Principal and Interest: With short-term loans, there are pros and cons to principal-and-interest payments. Most people choose interest-only because they plan to refinance or restructure the loan before it ends. If you want to chip away at principal, you can, but most borrowers restructure it anyway.

  Hack Crypto:
  We’re going to go ahead and put in one here, and you can see our terms: 15.5% APR, which consists of a 14% annual interest rate plus a 1.5% origination fee annualized.

  At the time of this recording, with Bitcoin at $62,000, this gives us a loan amount of $37,000. You might ask, “Why is that less than the overall value of Bitcoin?” That’s because of the loan-to-value ratio (LTV).

  The LTV ratio is calculated in a similar way to a HELOC or home equity loan on a rental property or real estate investment. Essentially, you’re only allowed to take a certain percentage of the collateral’s value. This percentage balances the risk from the lender’s perspective.

  From the borrower’s perspective, you just need to know what percentage you can take out. These calculations vary by asset—it’s important to know this isn’t a flat 60% across the board. That’s the maximum for Bitcoin specifically.

  Different assets have different percentages, and you can see that there’s also a liquidation process if the price moves significantly. There are many terms involved, but ultimately, the key point is that this percentage determines how much you can borrow relative to your total asset value.

  This is a non-taxable event. If you were to sell half a Bitcoin and take that cash, you’d owe taxes on that transaction. With a collateralized loan, it’s debt, not a sale, so there’s no tax. That’s a huge value proposition—you’re sacrificing a higher LTV percentage to hold onto the asset and avoid a tax event.

  You also need to decide how you want to receive the funds. Will you keep it within the crypto ecosystem as a stablecoin like USDC, or will you take it out as U.S. dollars straight into your bank account?

  In most cases, people I know who use these loans take the funds in dollars so they can make business transactions in USD, essentially bridging their digital assets into cash positions without triggering tax liabilities. It makes for a seamless experience.

  In my opinion, a bank wire is usually best. Personal loans must be disbursed to personal bank accounts. If you want the funds in a business bank account, you must borrow through a business entity.

  So the key takeaway is that this loan product is for personal use, not business use. You’ll borrow as an individual, but once the funds are in your personal account, you can invest them in a business or use them however you want.

  This is a crucial regulatory point. Arch is fully regulated in the U.S., ensuring that institutions and businesses are correctly signed up as such and that funds are wired appropriately. That’s really important.

  Samantha Herrick:
  All right, I hope you enjoyed that little demo I just shared. Now we’re going to hop into the interview with Mike and the two guys from Arch Lending. Without further ado, Mike, take us away.

  Mike Collins:
  All right, welcome to the Alumni Ventures Meet the Startup podcast. I’m here with a really exciting company, Arch Lending. I’m joined by the two co-founders, Himanshu Sahay and Dhruv Patel. Welcome to the show, guys.

  Himanshu Sahay:
  Thank you, Mike.

  Dhruv Patel:
  Thanks for having us, Mike.

  Mike Collins:
  So tell us—give us the elevator pitch. What’s Arch Lending? What do you guys do, and why does the world need it?

  Dhruv Patel:
  Yeah, the quick elevator pitch is that we provide loans against cryptocurrencies like Bitcoin, Ethereum, and Solana.

  But if you zoom out, Arch is really focused on building a next-generation wealth management and private banking platform for people with alternative assets. We’re looking to redefine financial services for this segment of customers.

  Himanshu Sahay:
  The reason for that is that, over the last 15 years, people’s asset allocations have shifted. It’s no longer just stocks, bonds, and real estate. Many are heavily invested in crypto and private equity—either as employees or investors in high-growth companies.

  Yet, they’re at a disadvantage when it comes to accessing traditional financial services through banks or other platforms. There’s a massive opportunity to serve this growing customer base.

  The crypto asset class alone has grown 646 times in the last 10 years, and it continues to grow rapidly.

  Mike Collins:
  Yeah, I was early to this space, and at the time, everyone thought I was crazy. Obviously, there have been ups and downs along the way, but it’s been one of the greatest investments of my life—and I don’t think we’re anywhere near the end of the journey yet.

  I heard recently that there are something like 40 to 60 million Americans who now have crypto assets of some kind.

  Himanshu Sahay:
  Yes, that’s right.

  Mike Collins:
  So this isn’t a rare phenomenon anymore.

  Samantha Herrick:
  To wrap up this “elevator pitch” portion of the podcast and interview, I want to read something from Arch Lending’s website.

  On the ArchLending.com/about page, there’s a letter from the founders, Himanshu and Dhruv, and I think it’s super interesting and worth sharing.

  Samantha Herrick:
  The next section of this podcast is where Mike and the team really talk about the future of crypto investing and money lending in general. That’s a really exciting narrative coming up next.

  But first, here’s the letter from the founders:

  As long-term crypto investors, we faced the persistent challenge of finding trustworthy financial services that truly understood our needs. We realized the ideal solution didn’t exist, so we decided to build it ourselves. That’s how Arch was born—a platform designed by crypto investors, for crypto investors.

  Our mission is simple: to be the leading crypto financial services platform, renowned for industry-defining security, trust, premier product experience, and concierge customer service.

  • Security first: Security is at the heart of everything we do. Arch holds all assets in qualified custody, ensuring your assets are safeguarded with bank-grade security and insurance. Whatever your use case, your assets are safe with us.

  • Trust as our foundation: Arch was founded on the principles of security, customer experience, and asset protection. We operate a strict no-rehypothecation policy and follow regulatory licensing and compliance rigidly in all operations, ensuring your trust in us is well-placed.

  • Seamless experience: Arch is the only fully automated crypto lending platform. You can configure your loan and receive funding within minutes without the hassle of lengthy approval processes.

  • Exceptional customer service: Our team is available via chat, phone, email, and text to support you whenever needed.

  Thank you for choosing Arch. We’re here to provide you with the most secure, trusted, and seamless crypto lending experience.

  Sincerely,
  Dhruv and Himanshu

  Mike Collins:
  Talk about the bigger trend—where do you see this going over the next five or ten years, not just for your company but the industry in general? What are the tailwinds?

  Dhruv Patel:
  I think we can separate that out a bit. To your point, there’s a growing number of people in the U.S. owning crypto, and we see that across our customer base. It’s not just younger demographics living on the coasts—we have folks throughout the country, from their 20s to their 70s.

  The common theme is that most of them are holding for the long run, and that’s why they’re coming to us—to borrow against these assets so they can make other investments or purchases.

  Where we see ourselves right now is addressing that core need for our customers: liquidity against their assets. But looking forward, we see Arch becoming more full-stack—handling more of their financial services.

  Tomorrow, that might mean enabling them to put idle assets to work and earn yield, or access other financial services directly through Arch. Our vision is to become their full financial provider.

  Mike Collins:
  Tell me a little about where you think the regulatory environment is headed. Obviously, it’s an election year, and there’s a red team and a blue team. How do you see that playing out?

  Himanshu Sahay:
  I think it’s been made clear that the crypto user base is significant. For example, the red team identifies about 50 million U.S. wallet holders in crypto—that’s substantial. It’s even the second-largest donor group behind them.

  So it’s understood as a very important base, and I think that will lead to increased regulation. The U.S. is far behind other Western countries in crypto regulation, but as policymakers better understand the size of this base and the importance of this industry for U.S. growth, regulation will catch up.

  We welcome and encourage this because we’re operating in a fully regulated fashion. We believe the future of crypto—in the U.S. and globally—will be shaped by robust regulation.

  Dhruv Patel:
  I’d add that, regardless of election outcomes, crypto has reached a stage where it’s no longer a small movement. Financial giants like BlackRock are not only pushing ETFs but also developing other derivatives.

  It’s clear crypto has become mainstream enough that it’s not going away. Regulations will follow to support that maturity.

  Mike Collins:
  The way I see it—and again, I’ve been involved in investing in this space for some time—is that the floor keeps moving up.

  There were times, especially around 2016–2017, when it felt like this could be made illegal. Back then, the floor was pretty scary. But that’s long gone now.

  We now have SEC-approved ETFs. There’s too much wealth and too many people involved for this genie to go back in the bottle. Every year, the floor rises on crypto’s potential, while the ceiling remains high.

  Both political parties recognize the value of the crypto community. You’ve got the blue team with strong California tech influence and the red team appealing to this market. So for crypto, it’s heads you win, tails you win.

  Himanshu Sahay:
  I’ll give you an example of how important this is becoming.

  A couple of days ago, I was at dinner with President Trump and several crypto leaders. This was less than two months before the election, and he still made time to meet with us—right after finishing a rally earlier that day.

  Four years ago, a candidate wouldn’t have prioritized speaking to the crypto community this close to an election. Now, it’s become essential to appeal to this group and understand their needs.

  Mike Collins:
  Yeah, it’s definitely become a desirable donor base—something politicians have to address.

  What’s your question? We have a large community of other founders and many people who have invested in our funds. How can they help you?

  Dhruv Patel:
  There are a few ways.

  One, we’re always looking to connect with people in the crypto industry—whether you’re a personal investor or the founder of a crypto company we might collaborate with across the ecosystem.

  Two, we welcome feedback from anyone investing in alternative assets broadly. Learning about their pain points helps us shape our product roadmap as we continue to scale.

  Samantha Herrick:
  We’re going to take a quick break, but we’ll be right back.

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  Mike Collins:
  Great. What’s a myth or misunderstanding you think people have about this asset class?

  Himanshu Sahay:
  Many people—especially from traditional finance—think crypto is highly volatile.

  But as a lender, when we look at crypto (defined as Bitcoin and Solana), it’s actually less volatile than big tech stocks in today’s market.

  Lending against crypto is safer for us than lending against many stocks or less liquid assets. Crypto trades 24/7, so there’s no risk of sudden drops when markets are closed. Prices move continuously, and if needed, we can always liquidate collateral along the way.

  Mike Collins:
  Yeah, that’s a really good point.

  I also think a major tailwind for crypto and decentralized systems is that both political parties have supported massive spending, deficits, and money printing.

  Smart investors and institutions realize that a diversified portfolio can’t just be stocks and bonds anymore. Alternatives are essential—and within alternatives, crypto has become a legitimate diversification strategy.

  As you said, people want the same financial services they have for other assets, including borrowing against crypto and using it for other purposes.

  So, anything you want to share about your product roadmap—what can we expect from Arch over the next 12 months?

  Dhruv Patel:
  To date, we’ve focused on borrowing services against crypto assets.

  On the roadmap, we plan to let customers invest and earn yield on idle assets like Bitcoin and cash.

  From there, we’ll naturally extend to offering trading and other products our customers are asking for.

  Mike Collins:
  Yeah. Well, congratulations on your success so far and the progress you’ve made. We’re excited to have you as part of our portfolio.

  We look forward to catching up in six months to see how Arch has continued to grow. It’s been great meeting and chatting with you both.

  Dhruv Patel:
  Likewise. Thanks for having us on, Mike.

  Himanshu Sahay:
  Thank you.

  Mike Collins:
  All right, thanks again.

  Samantha Herrick:
  Thanks again for tuning into The Tech Optimist.

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  As always, keep building.