Today, we’ll be talking about our solution to a problem that many crypto supporters face: how to spend your crypto without selling it. Just to clarify, paying for something in crypto is the equivalent to selling it because you no longer own it.
Our answer is a platform where users can take out fiat loans using their cryptocurrency as collateral to get the best of both worlds. We primarily hold, or “hodl,” our crypto because we expect its value to increase in the future, which in trading terms is called a “long position”. People don’t like selling their crypto because they fear missing out on the potential profit generated by an increase in the crypto’s value. When you take out a fiat loan while locking in your crypto as collateral on INLOCK’s platform, you’re still able to keep your crypto while accessing it’s purchasing power at the same time. The US$ value of your crypto is locked in at the time the loan contract is formulated, so when it’s time to pay it back, you only have to pay the original amount plus the interest and platform fee, regardless of what’s happened to the value of your crypto. To help you understand why someone would take out such a loan, we’ve outlined a scenario below.
Some of our users take out loans to cover expenses they would have otherwise paid for with their crypto, while others only need the cash to cover a short term liquidity problem (with the intent of keeping the crypto when the contract expires). Following the first example, if we want to buy a plane ticket for $1,000 but only have Bitcoin, we can lock $1,300 worth of BTC (0,18 BTC at the time of writing) as collateral to get a $1,000 loan with a 30% overcollateralization to allow room for volatility (the minimum overcollateralization value is 5%). Instead of holding a centralized pool of liquidity, INLOCK allows institutional lenders to compete for borrowers by offering loans after they submit a lending request. In this instance, let’s assume we took out a loan for 6 months with 10% APR (which is equal to 5% interest for the given contract period [$50]). The platform fee we would have to pay for using INLOCK is 0.25% of the USD value of the collateral at the time of contract formulation ($3.25). This means that for $53.25 + the amount the bank charges to deposit the $1,000 into your account (0.1%-0.5%, $3 on average), so for $56.25 we have a $1000 loan for 6 months. If Bitcoin decreases in value, we have the option to add additional collateral at any point or extend your loan if we believe it will go back up. On the other hand, if Bitcoin were to go up by more than 5.625%, we just bought plane tickets at a cheaper price by using INLOCK, whereas we would not have gained anything if we had sold 6 months ago. If we continue with the same scenario, but with the intention of buying back our BTC (paying back the loan), we can pay the $1,056.25 and buy it back at the price it was 6 months ago. INLOCK accepts BTC, ETH, BCH, LTC as collateral with new cryptocurrency being added every 6 months.
Just like in the case of a traditional bank loan, if you don’t pay on time, the bank will foreclose on your collateral. In the case of a mortgage, where your home is the collateral, foreclosure due to the lack of payment would be a terrible experience. When a bank sells your assets to cover for the loan they gave you, they usually sell at a highly discounted price to get their money back as soon as possible. In the case of crypto backed loans, the value of collateral is very easy to calculate and can instantly be liquidated.
This is a very efficient way of accessing the purchasing power of crypto — it’s the ultimate answer to the hodlers dilemma.
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