In this article, we look at some examples of how Inlock’s services can be used in different market situations.
Each use-case is listed according to its risk level. Starting from low-risk but high-yield solutions to high-risk and high-yield solutions.
The first use is for those who want to earn a return above inflation or at least maintain the purchasing value of their money, despite the significant risks they see in cryptoassets due to their volatility.
Stablecoins were actually made for them! Principally, coins from issuers with a physical deposit, proper supervision and regular audits. USDC – that was issued by Circle – is exactly like this. Of course, a lot more other solutions are available on the market, although if somebody wants to act safe, they should go for this coin. Inlock supports USDC, for which an amount of 8-12% interest can be realized on an annual basis depending on the amount of ILK tokens stored.
Risks: quite low. Risks: quite low, it depends on the of USD/HUF exchange difference, if the value of the HUF increases significantly against the value of USD, it may result in exchange rate losses. If the value of the currencies against each other does not change, the realised return is 8-12%, if the value of the forint decreases, the return can be higher on an annual basis.
Let’s think in a portfolio!
Those who don’t settle for interest levels above 8% with very low risk, can always apply the well-known principle of diversification.
Inlock currently supports four categories of assets that are compatible to set up a diversified portfolio, since they have completely different market impacts behind them. These are:
• USD stable coins: USDC, USDT and DAI. They all have USD-based value behind them, but they use completely different methods to achieve this. We advise using USDC for beginners and those who avoid risks.
• The gold-based stable coin: PAXG. This is a tokenized gold product issued by PAXOS, that has real and regularly audited gold collateral behind, which can also be redeemed as a physical gold bar (an exact amount of PAXG have to be owned to claim a gold bar).
• Cryptocurrencies with big capitalization: BTC, ETH, LTC. These typically fluctuate similarly and can therefore be placed in the same category.
• Smaller, but immensely volatile cryptocurrencies: BNB, LINK, OMG, MKR, SOL, FTT, SRM and RAY, that offers a 24% yield. These lesser-known tokens carry substantially bigger risks such as cryptocoins with big capitalization.
For those who not only want to avoid inflation, it might be worth setting up a portfolio that has USD-based and even gold-based stablecoins in a bigger portion but also has crypto coins in a smaller volume depending on the risk they would take. Portfolios can be easily put together with no loss compared to the initial value of the USD (neither profits in turn), however, if the exchange rates turn out to be prosperous, it can double or triple the annual yield compared to a solely USDC-based portfolio.
Risks: it depends on the portfolio, but can be kept low. Realizable return: it might be 0% in case of a pessimistic outcome, but it can also reach 20-30% in case of a low-risk portfolio.
Stay in position!
Usually, miners choose this option, but we also heard stories about clients who use this opportunity deliberately. The Savings Account is out of the game in this situation, they use the loan function instead. The client (for example a miner) can utilize their cryptocurrencies stored in Inlock (typically BTC, ETH, LTC) as collateral to take out a loan in USDC. Therefore they can stay in position since they don’t have to sell their crypto to repay their bills. Since they speculate on the rise of the exchange rate, they have to sell less expectedly in the future from the same amount of BTC and ETH, so they will acquire exchange rate gains and their bills will be paid as well.
Another alternative of this method is when the client consciously buys Bitcoin, only to take out a loan from Inlock. After the expiration of the loan, they simply pay it off by the collateral (this is a function where the system only sells the part of the collateral which is necessary for the repayments). If the calculations are right, they can even spend the exchange rate gains in advance practically.
Risks: it depends on the ratio of over-insurance, but generally high since the client needs to constantly provide enough collateral during the payment period. Realizable return: none, solely the future exchange rate gains can be spent.
Inlock is a perfect tool for optimizing taxes. Especially if someone has been in a crypto position for a long time, so selling would result in a significant amount of tax for the exchange rate gains. Inlock can help in this situation by resolving refinancing problems in the short term without creating a tax base.
A typical example: a client owns Bitcoin that they bought years ago and selling it would result in a significant amount of tax. Moreover, they only want to sell their Bitcoin for a short term to finance a transaction and then plan to buy it back afterwards. In this case, on one hand, the client loses some of his profits and also runs the risk of a repurchase price.
By contrast, Inlock allows clients to take out loans for up to 360 days for a crypto collateral, therefore they are exempt from paying taxes and the risk of the exchange rate.
Risks: it depends on the ratio of over-insurance, but essentially it’s high as the client has to provide sufficient collateral constantly. Realizable return: there is no return in this case, although the profit can still be significant as the client is exempt from paying income tax, but has to pay interest on the loan instead.
HODL on steroids
We left one of the most common usability modes for the end that Inlock’s current clients make use of. This is especially useful for those who were already disappointed by waiting for the #altseason and day trading, but want to earn more on the increases than on the rise of Bitcoin, Ethereum or their other cryptocurrencies against the dollar.
The method is quite simple: Instead of keeping the crypto assets in the Savings Account, clients can easily take out a loan with a 60% LTV and then purchase the same kind or any other cryptocurrency from the loan they have just taken out.
How does this work in practice? Let’s take an example: there is a client who has 1 ETH that is worth $1,800 right now. Assuming that the client says the ETH is underestimated and expects a more serious increase within the next 3-4 months based on certain fundamentals. We also assume that within 90 days, the ETH will actually reach, let’s say, $2,500. So if the client does nothing (does not use Inlock), they gain about 38.8% in 3 months against the USD exchange rate. (ETH’s all-time high was $4,891.70, and the exchange rate has fluctuated between $2,200 and $3,200 over the past 30 days)
If they deposit the amount to their Inlock Savings Account, their gains will exceed 39.29%. (The profit is also boosted by the Savings Account’s 3-month yield of the ETH, calculated with 4% APY)
If the client desires more than that, it’s time for the “HODL on steroids” strategy:
• The client borrows 1 ETH for example at an exchange rate of $1800 (exchange rates are constantly changing) with a 60% LTV. He receives a total of 1080 USDC as a loan. As there is no withdrawal fee on the loan taken out, the borrower can buy 0.6 ETH immediately, but in order to avoid withdrawal time and delay, they can easily exchange their crypto assets with the Inlock Swap feature.
• They deposit the 0.66 ETH to the Inlock Savings Account, which will earn interest for 3 months.
• The 3 months pass by, the exchange rate is at $2500 now, so the client decides on closing their position. At this point, they have 1 ETH as collateral and 0.602445 ETH (including interest), and also have a debt of about 1118 USDC.
• For the repayment of the loan, the client has to sell 0.4472 ETH (due to the exchange rate of $2500), or exchange their ETH for USDC through Inlock Swap to make repayments in the same currency.
• By the end of the transaction, the client has 1.155245 ETH that has a worth of $2888.1125.
Their net profit in three months: 60.45%
Of course, the client can also make a significantly higher profit if they calculate with a bigger increase of exchange rate and higher LTV. Not to mention the option where the client implements multiple leverages within Inlock. (The ETH purchased from the amount of loan is not stored in their Savings Account, instead, they also take out another loan, from which they can buy ETH again.)
These risks are significant since such a profit indeed requires the exchange rate to increase over the life of the loan. Nevertheless, this method still holds considerably lower risks than day trading or any merchant robot, Signal groups, etc. that give fantastic promises.
Risks: especially high, since if the exchange rate does not turn out as the client expects, they might even come out with a significant loss!
Realizable return: based on the example above, it’s clear that under appropriate market conditions, the profit can be realized up to 60% in the short term. What’s more important, the amount of crypto assets owned by the client can also increase significantly by this version.
Let’s take a look at the risks of the Inlock platform, as they are present in all the strategies described above, so these risks are true in any case: the Inlock platform is an alternative financial product that only provides cryptocurrency-based Savings Account and lending functions. The crypto assets deposited are managed by the platform but can be withdrawn and freely disposed of by our clients at any time. The platform generates interest from lending, which is backed by over-secured collateral. The platform only accepts collateral (cryptocurrency) that can be quickly liquidated. In the last two years, more than $100 million of loans have been processed. Currently the platform manages ~$94 million in client assets, which is growing as new users join the platforn. It has over 17,000 users. Inlock is a registered custody service provider and complies with the client identification and AML requirements of EU AML Directive 5, which is certified by an independent auditor. In addition, client assets held within Inlock are held in an account with one of the world’s most secure technology custodians (Fireblocks). Fireblocks is highly insured and SOC 2 Type II security certified by E&Y.