Category Archives: Crypto-Backed Lending

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Blockfi Takes Crypto-Backed Lending to 44 US States with California Coup

Crypto-backed lending platform Blockfi has received a license to operate in California, which takes its spread of business into 44 US states.

The Californian license, on top of the those already held by the company, is an indication of a growing interest in crypto backed lending across the US. Another service, SALT, is currently providing its service in 35 states across the country, with Nexo as another major crypto loan facilitator.

Crypto-backed loans are arranged by the borrower transferring a set amount of cryptocurrency to a participating crypto platform where the assets are stored in a cold wallet as collateral for a cash loan. The loan period can vary but is often between 10% and 20%, with loan terms varying from one month up to as long as five years.

In order to protect lenders, the cryptocurrency deposited always exceeds the loan required with standard loan-to-value ratios coming in at between 40% to 60%, although this ratio can vary. To use this example if a borrower wants a loan of USD 50,000, then crypto asset collateral worth USD 125,000 would need to be deposited.

In a case where the borrower ceases payments for any reason, the platform is at liberty to sell on the collateral thereby covering the loan, or if there is a decrease in the value of collateral – a risk in falling markets – the borrower has 48-72 hours to correct the ratio to its original level. This type of lending can be risky as with market fluctuation, particularly a falling market, both lender and borrower can be taking a gamble.

Blockfi CEO Zac Prince suggests that its platform is aimed at institutional investors:

“We’ve found that a lot of crypto-asset investors are hesitant to use their crypto because of concerns with security and trust in the space… We’ve built our platform with an institutional-quality approach from top to bottom.”

Prince sees as this type of loan facility as appealing to those who want liquidity without selling their crypto assets. Just a few of the plethora of companies now operating in this growing market are Abic Corporation, Coinloan, Othera, Ethlend and Everex.

 

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