As stocks continue to fall after recent spikes, investors look for higher returns. Some have turned to the crypto-based decentralized financial (DeFi) realm, where revenues from cryptocurrency lending and investing can vary from 1% to 15% for riskier projects.
Others are looking at high-yield savings accounts like the one from Y Combinator Supported fintech startup pebble, which offers 5% annual return (APY) on all cash deposits. Pebble is able to provide these relatively high returns through the use of stablecoins, which recently came into the limelight after Terra’s UST experienced a collapse, leading to wider instability in the crypto ecosystem.
But Pebble’s approach involves far less risk than people have come to associate with stablecoins, co-founder and CEO Aaron Bai explained to businesstraverse.com in an interview.
Pebble users deposit fiat currency into their accounts first, Bai said. The startup then converts that money into USDC, a digital stablecoin backed by traditional cash and treasury reserves — a markedly different approach from the algorithmic stablecoin UST, which uses a much more complex system to maintain its peg to the US dollar and holding other cryptocurrencies instead of fiat currencies as reserves.
Once Pebble converts the money into USDC, it will lend the money to “highly regulated institutions” such as crypto firms Coinbase and BlockFi, as well as traditional financial entities, including hedge funds, who are willing to pay a premium to access stablecoins due to their efficiency. and ease of use, Bai said. When I asked Bai if he is concerned that users will lose their money if institutions fail to repay the loans, Bai explained that Pebble lends money at 150% overcollateralization – meaning the borrowers have assets worth 150% of the loan’s value as deposit collateral.
“If you borrow without collateral, there is a huge risk, because [the borrower’ is not putting down an asset,” Bai said. “Fortunately, because [Pebble’s borrowers] Putting down $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 his assets.”
Bai said Pebble is partnering with two lending institutions to further mitigate risk, in addition to the crypto API provider first trust†
In addition to the 5% APY feature, Pebble also offers 5% cashback on all trades with its 55 partner merchants, including Uber, Amazon, Chipotle, Airbnb and Adidas, Bai said. But Pebble is not a credit card, he added. The interface functions as a single app where the 5% cash interest rate applies to all deposits made and the 5% cash back applies to all in-app spending made through these merchants, Bai said.
Pebble’s 5% cashback is higher than what traditional credit cards offer because traditional credit card providers rely on intermediaries such as Visa and Mastercard, as well as fraud protection services and other third parties to process their transactions, leaving less money for the customer, Bai explained. Pebble, on the other hand, is set up as an affiliate program with each merchant, with Pebble serving as a customer acquisition channel for the merchant and issuing rewards to its customers in the form of gift cards to that merchant rather than direct cash rewards, he said. †
That system allows merchants to save up to 7% percent on each trade, making it more lucrative for them to offer rewards through Pebble rather than a credit card provider, Bai said.
“Every time a customer buys a gift card through the Pebble ecosystem, that money goes straight to the merchants. The traders love that they are actually getting their profits and not paying out these inefficient intermediaries, and they want to continue the cycle,” Bai said.
The gift cards appear in the Pebble app as a QR code that can be scanned in person at any merchant or as an alphanumeric code that can be redeemed online, Bai demonstrated as he walked me through the app. Notably, Pebble is partnering with MasterCard to offer this feature through a Pebble-branded virtual card (and physical card for select customers), Bai said.
The company, a participant in Y Combinator’s Winter 2022 cohort, emerged from stealth 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 photos and uploading them to the app, and is developing payroll integrations further, Bai explains.
Like many fintech entrepreneurs, the co-founders are clear about their disdain for traditional banks, with their many fees and often outdated technical interfaces. So how will Pebble stand out from a bank?
Bai was less clear about that. He said customers can collect rewards points for their activity on the app, called “Pebbles,” but declined to share many details about what those Pebbles actually enable or represent, other than being crypto-related in some way.
“If you are here for the crypto, the Pebbles are the key, and the more power you will have as we develop this platform further and move to another 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 web3 through a very simple, attractive financial app, where people can keep their first digital assets without even knowing it,” said Bai.