Why We Invested in Spout: Zero-Interest Borrowing Against Tokenized Stocks

Draper Dragon has invested in Spout Finance, which lets people borrow against tokenized assets at 0% interest. We join Anchorage Digital, Flow Traders, Taisu Ventures, Vessel Capital, Solayer, 2Square Capital and Bering Waters Ventures in the round, with strategic backing from Solana.

Borrowing against a stock portfolio is one of the oldest tools in finance. The buyer keeps the shares and the upside - cash without a sale. The terms have always depended on who you are. Private banking clients get securities-based loans at low rates. Everyone else gets margin loans from their broker, where rates on smaller balances often run into the double digits (Schwab, for example). That interest accrues daily, turning borrowing against stocks into a short-term product. An investor who wants to hold a position for years and still use its value has had very little to choose from.

Spout changes where the money comes from. Holders post tokenized US equities as collateral and borrow USDC at up to 50% of their value. Each week, Spout writes far out-of-the-money covered calls against the pooled collateral, and lenders are paid from that option premium. The borrower pays no interest for as long as the loan is open. Instead of sitting idle as collateral, the shares are put to work earning option income, and that income pays for the loan.

As Chris Giancarlo, former Chairman of the CFTC and an investor in Spout, shared in Spout's announcement, "Spout lets individuals put up tokenized shares of stock as collateral for margin loans without paying interest. Spout covers its costs in a different way: by selling options contracts tied to the pledged shares, and the fees it collects from selling those options pay for the loan instead of the borrower. That is prime brokerage economics made available to individuals. It is why I have invested in the company and serve as a strategic advisor."

Two things convinced us to invest.

The first is where the yield comes from. Lenders are paid from option premium, one of the most established income strategies in traditional markets. No token emissions are involved, and borrowers aren't the ones paying. That makes the model easy to reason about, and it doesn't depend on new users subsidizing old ones.

The second is what Spout is building toward. Tokenized stocks are arriving quickly from exchanges, brokers and issuers, and most of the work so far has gone into getting those assets on-chain. What holders can do with them once they are there matters just as much, and borrowing is one of the first things they will ask for. Spout plans to be the credit layer that issuers, exchanges and wallets plug into, so each of them doesn't have to build lending from scratch.

Backing Spout continues how we have invested in tokenization for years: in the infrastructure that makes on-chain assets useful for real portfolios. Our portfolio already includes Centrifuge and OpenTrade on the real-world asset side, and Spout extends that thesis into equities.

"Tokenizing a stock is only the first step. The next phase is making those assets productive - usable as collateral and seamlessly connected to DeFi," said Samiz Bayan, partner at Draper Dragon. "Spout offers holders the kind of borrowing that used to sit behind private bank minimums, and funds it from the portfolio itself."

We believe Spout has the capability to make tokenized equities productive while abstracting away the underlying blockchain infrastructure, creating a seamless experience for users. Learn more about Spout here.