Derivatives Decoded

EP 10 — $3.5 billion in bitcoin-backed loans with zero liquidations: The institutional underwriting framework

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Two Prime built one of the largest bitcoin-backed lending operations in the US by doing what collapsed lenders didn't: lending exclusively to institutions with provable bitcoin reserves. CEO Alexander Blume and CIO Nathan Cox explain their credit framework that's processed $3.5 billion in loans with zero liquidations across 40 margin calls, how they structured products using derivatives to eliminate margin call requirements entirely, and why their systematic trading strategies generating 8-10% bitcoin-denominated yields became the second pillar of their $2.5 billion business. Their approach reveals what institutional-grade infrastructure actually requires when managing other people's bitcoin.

Topics Discussed:

  • Credit infrastructure scaling $100M to $1.5B in loan origination within nine months using over-collateralization and institutional-only underwriting
  • Structured loan products engineered with derivatives overlays to eliminate margin call requirements while maintaining LTV discipline
  • Institutional borrower selection criteria: public companies with transparent bitcoin holdings versus retail credit risk vectors
  • Systematic strategy architecture combining CTA-style trend following, mean reversion, and volatility positioning for bitcoin yield generation
  • Custom OMS/EMS/PMS build requirements for simultaneous execution across 30-40 separately managed accounts with randomized order routing
  • Why separately managed account structure became product-market fit for public companies avoiding pooled investment vehicle tax events
  • Digital Asset Treasury categorization framework separating legitimate businesses from desperate pivots based on operational track record
  • Bitcoin-only collateral thesis rejecting ethereum and altcoins despite demand based on institutional volatility profile analysis
  • Institutional DeFi barriers that higher yields cannot overcome: custody gaps, AML/KYC requirements, and SOC compliance failures
  • Deribit liquidity concentration at 87% options flow and why competitive threats haven't materialized despite predictions

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    Derivatives DecodedBy Kemet Trading