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1373 sats \ 3 replies \ @lightcoin 18 Apr 2023 \ on: Bitcoin Loan VS Bitcoin-backed Loans: Pros & Cons bitcoin
Lending/borrowing BTC is only really useful for explicitly shorting BTC as in margin trading. It is otherwise too risky to borrow BTC, your loan could end up costing way more than a loan denominated in a less volatile asset. For example, imagine borrowing 1 BTC in March 2020 and expecting to pay back the loan by the end of the year... you'd receive $4000 in value at the time of the loan and by the end of the year have to pay back over $50,000 in value. Not a very good deal for the borrower.
Loans collateralized by BTC give borrowers the ability to unlock the value of their BTC without having to sell. Because the loans are over-collateralized, they can have lower interest rates than unsecured credit. It does of course require the borrower to already have assets in the form of BTC, so would not be appropriate for people who have very little in savings. But for people who hold BTC and want to access some of that value without having to sell, and are willing to maintain a sufficient collateral ratio to avoid liquidation, I think it is a good option.
There is a platform called Sovryn that offers both options, borrowing BTC, and borrowing using BTC as collateral: https://alpha.sovryn.app
You can look there and see the terms and interest rates and see what makes sense for your situation.
I not know Sovryn was allowing BTC lending/borrowing directly, I'll check it out. I knew about Lend.HodlHodl.com that is actually just playing as facilitator more than intermediary (I though is an interesting approach)
So in the case of lending/borrowing BTC directly... it will make sense to do it only for long terms contracts, like over 5 years?
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So in the case of lending/borrowing BTC directly... it will make sense to do it only for long terms contracts, like over 5 years?
I think moreso the opposite, it would only make sense on very short timescales. Long term we expect the BTC price to go up right? So we don't want to be short BTC long term. Even short term is risky haha but some people do make money shorting BTC.
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Hot take: hodlhodl's lending model is custodial
They use 2 of 3 multisig where you have a key, your counterparty has a key, and hodlhodl has a key
That means in all of these loans there is a group of 2 people (your counterparty + hodlhodl) who can pull the rug out from under you and run off with your money
They have the keys to your coins and can move them independently. You do not have the keys to your coins and cannot move them independently. That's precisely what custodial means: someone else has your money instead of you.
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