From now on, I ask for more details. You took out a loan when bitcoin is worth 64K, and you repay a loan when it is worth 36K ... this is bad economics)
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From now on, I ask for more details. You took out a loan when bitcoin is worth 64K, and you repay a loan when it is worth 36K ... this is bad economics)
Posted Using LeoFinance Beta
That's not how it works, so lets say I have 1 Bitcoin to make it simple, the bitcoin price is 64k.
I lock my bitcoin in a multi-sig, so I don't give up ownership and I get a stablecoin in return.
I draw out 10% loan to collateral value, that means I am taking out 6400 in stablecoins, lets say my loan is for a year at a 10% interest.
So I need to pay back $7040 or $586 per month
Bitcoin would have to drop 90% for me to even be faced with any of liquidation. If it drops lets say 50%, and its now 34k your LTV ratio is now 20%, you can either up your collateral and add another 1 BTC to get it back to 10% or the interest rate changes to accommodate for the risk in default.
Once I pay it back, my bitcoin is unlocked the stablecoin issuer gets their return and everyone is happy. IF I don't pay it back the bitcoin is liquidated to cover the balance and interest and the bitcoin left over is handed back to me.
It's the most sound economics, compared to unsecured loans or loans against an illiquid asset like your home
As they say, to each his own) ... I try to stay away from any loans. With the same success, you can sell part of the bitcoin, twice as much as you need to solve your pressing problems and, in its fall, return the bitcoin to yourself without resorting to lending.
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