As equities continue to fall from recent highs, investors are looking for higher returns. Some have turned to the realm of crypto-based decentralized finance (DeFi), where cryptocurrency lending and staking yields can range from 1% to 15% for riskier projects.
Others are looking to high-yield savings accounts, such as fintech startup Pebble, backed by Y Combinator, which offers 5% annual percentage yield (APY) on all cash deposits. Pebble is able to deliver these relatively high yields through the use of stablecoins, which have come to the fore recently after the Earth UST collapsed, leading to wider instability in the cryptocurrency ecosystem.
But Pebble’s approach involves far less risk than 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 reserves and treasury bonds – 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 other cryptocurrencies in instead of fiat currency as reserves.
Once Pebble converts the money into USDC, it lends the funds to “highly regulated institutions” such as cryptocurrency 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 is concerned that users will lose their money if institutions do not repay the loans, Bai explained that Pebble lends funds with 150% overcollateralisation – meaning borrowers put up assets worth 150 % of the loan amount as collateral.
“If you are borrowing without collateral, there is a huge risk, because [the borrower’ is not putting down an asset,” Bai said. “Fortunately, because [Pebble’s borrowers] are putting $1,500, let’s say, into a user’s $1,000 deposit, there’s an asset. So even if the borrower fails to pay, we can liquidate their assets.”
Bai said Pebble partners with two lending institutions to further mitigate its risk, in addition to crypto API provider Prime Trust.
In addition to the 5% APY feature, Pebble also offers 5% cash back on all transactions with its 55 merchant partners, which include Uber, Amazon, Chipotle, Airbnb and Adidas, Bai said. But Pebble is not a credit card, she added. Its interface works as a single app, where the 5% cash interest applies to all deposits made and the 5% cash back applies to all in-app spend made by these merchants, Bai said.
Pebble’s 5% cashback is higher than what traditional credit cards often offer because traditional credit card providers rely on intermediaries like Visa and Mastercard, as well as fraud protection services and other third parties to process their transactions. , leaving less money in reward for the customer, Bai explained. 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 issues rewards to its customers in the form of gift cards to that merchant, in instead of direct cash rewards, he said. .
This system allows merchants to save up to 7% percent on each transaction, making it more profitable to offer rewards through Pebble rather than a credit card provider, according to Bai.
“Every time a customer purchases a gift card through the Pebble ecosystem, that money goes straight to merchants. Merchants love that they are actually making their profits and 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 that can be redeemed online, Bai demonstrated as she guided me through the app. Notably, Pebble works with MasterCard to offer this feature through a Pebble-branded virtual card (and physical card for certain customers), Bai said.
The company, a participant in Y Combinator’s Winter 2022 cohort, came out of secrecy 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, Quantstamp CEO Matthew Bellamy, 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 personal finances on a daily basis, they told me. Pebble already has a feature that allows users to pay, track and manage their bills by taking pictures of them and uploading them to the app, and it is developing payroll integrations, Bai explained.
Like many fintech entrepreneurs, the co-founders are clear about their disdain for traditional banks, with their bevy of fees and often antiquated tech interfaces. So how will Pebble differentiate itself from a bank?
Bai was less clear about this. He said customers will be able to accumulate reward points for their activities on the app, called “Pebbles”, but declined to share too many details about what these Pebbles actually allow or represent other than what they will be crypto-related in some way.
“If you are here for cryptocurrency, Pebbles are key, and more power you will have as we move forward on this platform and transition to a different stage,” Bai said.
Still, users don’t need to be crypto-savvy to use Pebble, he explained.
“We want to be that bridge, from the web2 user to the web3 user through a very simple and attractive financial application, where people can keep their first digital assets without even knowing it,” Bai said.