As stocks continue to trade lower from recent highs, investors are looking for higher yields. Some have turned to the field of crypto-based decentralized finance (DeFi), where returns from lending and staking cryptocurrency can range from 1% to 15% for more risky projects.
Others are considering high-yield savings accounts like the one at Y supported by a combiner fintech start-ups Pebble, which offers an annual percentage yield (APY) of 5% on all cash deposits. Pebble is able to offer these relatively high returns through the use of stablecoins, which found themselves in the spotlight recently after Terra’s UST suffered a collapse, leading to greater instability in the crypto ecosystem.
But Pebble’s approach involves far less risk than what people associate with stablecoins, co-founder and CEO Aaron Bai explained to TechCrunch in an interview.
Pebble users first deposit fiat currency into their accounts, Bai said. The startup then converts that money into USDC, a digital stablecoin backed by traditional cash and treasury reserves — a notably different approach to the UST algorithmic stablecoin which uses a much more complex system to maintain its peg to the US dollar and holds multiple assets. other cryptocurrencies rather than fiat currency as a reserve.
Once Pebble converts the money into USDC, it lends the funds to “highly regulated institutions” such as crypto firms Coinbase and BlockFi as well as traditional financial entities, including hedge funds, that are willing to pay a premium to access stablecoins because of their efficiency and ease of use, Bai said. When I asked Bai if he was worried that users would lose their money if institutions didn’t repay loans, Bai explained that Pebble lends funds with 150% overcollateralization, which means borrowers deposit assets worth 150% of the value of the loan as collateral.
“If you lend without collateral, there is a huge risk, because [the borrower] does not deposit an asset,” Bai said. “Fortunately, because [Pebble’s borrowers] deposit $1,500, say, on a user’s $1,000 deposit, there is an asset. So even if the borrower doesn’t pay, we can liquidate their assets. »
Bai said Pebble is partnering with two lending institutions to further mitigate its risk, in addition to the crypto API provider Main Trust.
In addition to the 5% APY feature, Pebble also offers 5% cash back on all transactions with its 55 partner merchants, which include Uber, Amazon, Chipotle, Airbnb and Adidas, Bai said. But Pebble is not a credit card, he added. Its interface works as a single app where 5% cash interest applies to all deposits made and 5% cash back applies to all in-app spend made through these merchants, Bai said.
Pebble’s 5% cash back is more than traditional credit cards tend to offer, as traditional credit card providers rely on intermediaries such as Visa and Mastercard, as well as credit card services. fraud protection and other third parties to process their transactions, leaving less cash rewards for the customer. , explained Bai. Pebble, on the other hand, is set up as an affiliate program with each merchant, in which Pebble serves as a customer acquisition channel for the merchant and offers rewards to its customers in the form of gift cards to that merchant. rather than direct cash rewards, he said. .
This system allows merchants to save up to 7% on each transaction, making it more lucrative for them to offer rewards through Pebble rather than a credit card provider, according to Bai.
“Every time a customer buys a gift card through the Pebble ecosystem, that money goes directly to merchants. Merchants love the fact that they actually get their profits and they’re not paying these inefficient middlemen, and they want to continue the cycle,” Bai said.
Gift cards appear on the Pebble app as a QR code that can be scanned at each merchant in person or as an alphanumeric code redeemable online, Bai demonstrated as he walked me through the app. Notably, Pebble is working with Mastercard to offer this functionality via a Pebble-branded virtual card (and a physical card for some customers), Bai said.
The company, which is participating in Y Combinator’s Winter 2022 cohort, sneaked out and announced its $6.2 million seed round today. Investors in the round include Y Combinator, LightShed Ventures, Eniac Ventures, Global Founders Capital, Montage Ventures and Soma Capital, as well as angel investors Odell Beckham Jr., musician Matthew Bellamy, Quantstamp CEO Richard Ma and others.
Bai and his co-founder/CTO Sahil Phadnis are working with their two other team members to develop other features that will help users manage their day-to-day personal finances, they told me. Pebble already has a feature that lets users pay, track and manage their bills by taking photos of them and uploading them to the app, and is further developing payroll integrations, Bai explained.
Like many fintech entrepreneurs, the co-founders make clear their contempt for traditional banks, with their multitude of fees and often outdated technology interfaces. So how will Pebble differentiate itself from a bank?
Bai was less clear about this. He said customers will be able to accumulate rewards points for their activity on the app, called “Pebbles”, but declined to share many details about what these Pebbles actually enable or represent beyond the fact that they will be related to crypto in some way.
“If you’re here for crypto, pebbles are key, and the more power you’ll have as we move this platform forward and move to a different stage,” Bai said.
Still, users don’t have to be crypto savvy to use Pebble, he explained.
“We want to be that bridge, from web2 to web3 user through a very simple and attractive financial app, where people can hold their first digital assets without even knowing it,” Bai said.