DeFi

What is a Bitcoin-backed loan and how to get one? — TradingView News

Published

7 months ago

26 June, 2024

Traders prefer OG over Dogecoin and other Altcoins — TradingView News

Bitcoin-backed loans are an innovative twist on traditional loans, combining them with the world of cryptocurrencies. These loans allow Bitcoin holders to use their digital assets without selling them, providing a unique way to access liquidity. The proliferation of cryptocurrency lending platforms has simplified the process, making these loans increasingly accessible.

What is cryptocurrency lending?

Cryptocurrency loans are revolutionizing the way individuals interact with digital assets, providing exciting new ways to borrow and invest with cryptocurrencies. At the heart of this system are lenders who deposit their cryptocurrencies on lending platforms to earn high interest, surpassing traditional savings accounts due to market volatility.

Borrowers, on the other hand, have access to capital without liquidating their cryptocurrency holdings. By providing collateral, usually in the form of other cryptocurrencies, borrowers can obtain loans in stablecoins or fiat currencies, freeing up liquidity while retaining ownership of their assets.

A key driver of this innovation is the rise of decentralized finance (DeFi) platforms, which use smart contracts to automate the lending process, eliminating the need for intermediaries and improving transparency and security. Showcasing the potential of DeFi to transform financial services, platforms like Aave, Compound and MakerDAO have become leading players in this space.

In DeFi, lending Bitcoin (BTC) typically involves the use of Wrapped Bitcoin (WBTC), which is compatible with smart contract networks such as Ethereum, Arbitrum, Polygon or Solana, allowing users to participate in decentralized lending.

Types of Crypto Loans

Crypto loans are typically offered as collateralized loans, meaning that users’ crypto holdings back them. Much like a mortgage or car loan, the collateral can be seized as payment if users fail to repay their loan.

Some platforms impose overcollateralization, allowing users to borrow only up to a specific percentage of their deposited collateral. In oversized loans, the value of the collateral exceeds the value of the loan, which can secure better loan terms by reducing the risk for the lender.

On the other hand, unsecured loans, also called unsecured loans, do not require any collateral. Loan approval processes depend on factors such as a history of responsible credit use and timely payments. Cointelegraph

When using cryptocurrency as collateral, users have two main options. First, centralized finance (CeFi) lending involves borrowing money from a cryptocurrency or blockchain company that operates similarly to traditional financial institutions controlled by a private central authority, thus offering more stability and security.

Second, DeFi loans allow borrowers to access funds through decentralized blockchains. Run by an open source network instead of a single entity like a bank or government, DeFi products allow users to directly manage their digital assets. However, lenders can take steps to secure the loan if necessary.

Understanding Bitcoin-backed Loans

Bitcoin-backed loans operate under collateral management principles and provide a secure gateway for users to leverage Bitcoin’s collateral value and access fiat or stablecoins. This financial route is revered for its security, with Bitcoin’s comparative stability compared to other crypto assets and its ability to unlock the highest loan-to-value (LTV) threshold, second only to stablecoins.

The LTV ratio measures the loan amount relative to the appraised value of the asset purchased. This is a key metric for lenders to assess risk, with lower LTV ratios generally indicating lower risk.

A multitude of platforms in the CeFi and DeFi space support Bitcoin-backed lending. These platforms often adhere to custody and security standards that align with the philosophy of Bitcoin holders, prioritizing robust security measures.

Among the myriad of options available, some Bitcoin-native solutions manifest as lending products built on top of layer 2 Bitcoin networks like Stacks. These products inherently rely on the security of the Bitcoin network while providing some degree of self-custodial access to Bitcoiners.

How to get a Bitcoin-backed loan

Before obtaining such a loan, borrowers should understand the collateral management process, loan eligibility criteria, potential consequences of default, and available refinancing options.Cointelegraph

Step 1: The borrower applies for a loan

Borrowers start by applying for a loan through a platform that specializes in Bitcoin-backed loans. During the loan application process, they provide details about the collateral, which is usually Bitcoin, and specify the desired loan amount.

Step 2: Borrower deposits Bitcoin into a lending platform’s crypto wallet

After approval, the borrower deposits the specified amount of Bitcoin into a crypto wallet provided by the lending platform. This Bitcoin is held in escrow for the duration of the loan, serving as collateral.

Step 3: The lending platform determines the LTV ratio

The platform then assesses the value of the Bitcoin collateral asset and determines the LTV ratio, which sets the maximum loan amount relative to the collateral value. For example, if a borrower deposits $10,000 in Bitcoin and the LTV ratio is 50%, they can borrow up to $5,000.

Step 4: Loan disbursement process begins upon approval

Once the loan is approved, the loan disbursement process begins, with the borrower receiving the approved amount in the currency or stablecoin of their choice. Meanwhile, Bitcoin collateral remains secure in the platform’s wallet. The borrower makes regular interest payments throughout the life of the loan, usually monthly. The interest rate depends on several factors, including the loan amount, the borrower’s creditworthiness and market conditions.

What happens to Bitcoin collateral if a borrower misses a loan payment?

When the borrower repays the principal amount along with accrued interest, the Bitcoin collateral is returned to their wallet. However, if the borrower fails to repay the loan on time, loan refinancing options may be available. In this case, the lending platform may initiate a margin call, requiring the borrower to deposit additional Bitcoins or risk having their collateral liquidated to cover the outstanding balance.

Benefits of Bitcoin-backed Loans

It is essential to weigh both the benefits and risks before considering Bitcoin-backed loans. An important advantage lies in the preservation of Bitcoin holdings. Users do not need to sell their Bitcoin to access cash. This allows them to retain ownership of their digital assets and potentially benefit from future price increases while meeting their current financial needs.

Additionally, crypto loans often offer faster approval processes than traditional loans, providing quick access to funds, which can be particularly beneficial in urgent situations where immediate liquidity is needed to meet obligations or financial opportunities.

Another advantage is the global accessibility and flexibility of Bitcoin loans, which are available worldwide, regardless of geographic location or credit history. Users enjoy the freedom to select loan amounts, goals and repayment options, allowing them to access liquidity based on their individual financial needs and circumstances.

Additionally, lending Bitcoin on cryptocurrency platforms can offer users attractive interest rates, often higher than traditional savings accounts. Additionally, borrowing against one’s Bitcoin holdings can provide tax benefits by bypassing capital gains taxes due to the sale of Bitcoin, thereby optimizing users’ financial approaches while reducing tax liabilities.

Risks associated with Bitcoin loans

First, the inherent market volatility and price swings of Bitcoin can be dramatic, which creates risk for Bitcoin-backed loans, potentially leading to the liquidation of collateralized Bitcoin if its value falls below a predefined threshold. Bitcoin price fluctuations can significantly impact loan repayment obligations, requiring borrowers to develop prudent risk management strategies.

Second, Bitcoin loan interest rates are subject to market fluctuations, exposing borrowers to increased borrowing costs if interest rates increase over the life of the loan. Variability in interest rates can affect overall loan affordability and impact borrowers’ financial stability over time.

The evolving regulatory landscape introduces ambiguity around Bitcoin lending, creating uncertainty in legal, accessibility and service conditions. As regulations evolve, the availability and terms of Bitcoin loans may be affected. Borrowers must stay informed of these developments and adapt their strategies to effectively manage potential impacts.

Cryptocurrencies are not insured by traditional institutions, which can result in loss of collateral in the event of hacking or lender insolvency. Additionally, entrusting Bitcoin holdings to lending platforms exposes borrowers to risks such as fraud, insolvency and security breaches. It is crucial to select reputable platforms with robust security measures and transparent policies to effectively mitigate platform risks. Due diligence and thorough research can help borrowers identify reliable platforms and minimize the likelihood of adverse outcomes.

Lenders may require additional collateral or liquidation of assets if cryptocurrency values fall below specific thresholds. Margin calls may occur suddenly and require borrowers to take immediate action to maintain their loan-to-value ratios, which could lead to asset liquidation or additional collateral requirements.

Finally, the inability to trade or transact crypto assets while holding outstanding loan balances may pose problems if prices decline, limiting access to or efficient use of collateralized assets and limiting the ability of borrowers to respond to changing market conditions or financial needs.

Fuente

DeFi

If You Missed BONK and PEPE This Year, This Viral New Crypto Might Be Your Salvation

Published

6 months ago

29 July, 2024

CoinFlix Staff

If You Missed BONK and PEPE This Year, This Viral New Crypto Might Be Your Salvation

Bonk and Pepe appear set to net new investors 10x to 100x returns over the next 12 months. However, cryptocurrencies in the DeFi play-to-earn gaming sector could offer even greater returns. As August approaches, Rollblock is emerging as a standout DeFi play-to-earn gem with the potential to 100x-1000x gains in the fourth quarter and beyond.

The project features an innovative revenue sharing model and exceptional accessibility, attracting players and investors. Additionally, Rollblock’s extensive game library of over 150 titles and enhanced sports betting are further driving excitement for the platform. Cryptocurrency analysts are expecting a sudden surge in demand. 800% a push for Rollblock from the beginning of September.

Bonk remains strong despite market fluctuations

While most well-known cryptocurrencies struggled throughout July, Bonk remained strong. As one of the highest-grossing meme cryptocurrencies of 2024, Bonk rose over 24% in July, while most cryptocurrencies experienced negative fluctuations.

Investors looking to add a relatively safe memecoin to their portfolio should consider Bonk. While Bonk is unlikely to generate explosive gains of 250x to 1,000x from here on out, Bonk could still theoretically provide returns in the 20x to 100x range.

Pepe should see a big rise in the next bull run

Alongside Bonk, Pepe has yet to go through a bull run. This means that there are still substantial gains to be made from Pepe over the next 12 months.

Pepe is down 4% in 30 days, but that shouldn’t worry Pepe investors in 2024. Experts believe Pepe’s best days are still ahead, with crypto analysts predicting a 10x to 50x surge in the next election cycle around November.

In the long term, Pepe could surpass the 100x mark for today’s investors. However, Pepe is a memecoin, and one should exercise caution when investing in purely speculative assets that have no utility.

Rollblock’s Unprecedented Hype Potential Could Push It Past 100x Valuation in Q4

Rollblock is a GambleFi Play-to-Earn token that integrates centralized and decentralized gambling on a single platform. By allowing players to earn rewards through active participation and gameplay, the platform creates a compelling incentive structure that appeals to both casual and competitive players.

With its cutting-edge blockchain technology, Rollblock offers top-notch security that keeps bets and transactions on the platform secure. The platform’s lack of KYC mandates appeals to both users who value anonymity and security.

Rollblock’s revenue sharing model, which allocates up to 30% of casino revenue to RBLK token holders, is a major draw for investors. The model involves burning half of the repurchased tokens and distributing the other half to stakers, increasing the token’s value and encouraging long-term investment.

The platform is also constantly evolving thanks to user feedback which has enabled updates such as the upcoming sports betting feature within the platform’s casino. This addition will complement Rollblock’s extensive game library of over 150 titles, ranging from traditional poker to innovative blockchain-based games.

RBLK is expected to emerge as one of the leading DeFi tokens in 2024. With a price of $0.0172 with impressive growth potential and over 140 million tokens sold recently, Rollblock is on track to enter the top 100 cryptocurrencies by Q4, making today a lucrative time to buy RBLK tokens.

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Fuente

DeFi

Cryptocurrency sector is experiencing ‘most misjudged moment’ since 2020, says venture capitalist Arthur Cheong

Published

6 months ago

29 July, 2024

CoinFlix Staff

Cryptocurrency sector is experiencing ‘most misjudged moment’ since 2020, says venture capitalist Arthur Cheong

Veteran cryptocurrency investor Arthur Cheong believes the digital asset sector offers long-term holders a golden opportunity.

Cheong, the founder of DeFiance Capital, tell His 171,700 followers on social media platform X indicate that he believes decentralized finance (DeFi) is hugely undervalued.

According to Cheong, DeFi projects are innovating at a rapid pace and leaving traditional financial (TradFi) companies in the dust.

“It’s been a long time since I’ve been this excited about the risk/reward and potential upside of DeFi. This is probably the most misjudged moment since the pre-DeFi summer of 2020, with extremely promising prospects.

I see opportunities not only in OG (original) DeFi, but also in some newer projects that are evolving rapidly and growing at a pace that fintech startups will do anything to match.

The veteran investor also believes that crypto is now here to stay following recent launch from the Ethereum spot market (ETH) exchange-traded funds (ETFs) last week.

“Overall, the floodgates are open and there is no turning back. TradFi asset managers will continue to launch new crypto products because, guess what: there is huge demand for them!”

I expect them to launch actively managed crypto ETFs [in the] coming years. ”

Earlier this month, Cheong laid that it might be a bad strategy for cryptocurrencies to seek mass adoption, believing that digital assets are designed to disrupt several key financial sectors.

“I think we should accept that cryptocurrencies may not be suited for mass adoption like Web2, but rather are optimized for some narrow but very high-impact use cases like stateless global money, cross-border payments, and decentralized finance.

Chasing mass adoption of normies may be chasing the wrong Grail from the start.

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