CoinLoan Platform Overcomes Volatility in Crypto-Backed Lending
TALLIN, Estonia, April 23, 2019 (Newswire.com) - CoinLoan crypto-backed lending platform presents a dynamic risk-management system that is capable of resisting market fluctuations. In numbers, this translates into raising the LTV limit to 70 percent and liquidation threshold to more than 90 percent. In practice, it allows borrowers to get more fiat against their crypto and not care too much about margin calls.
The Necessary Evil of Crypto-Lending
Crypto-backed lending services help hodlers to access the liquidity of their coins by borrowing against them rather than selling them. No wonder that such services gained wide popularity during the last couple of years. The high liquidity and boundless nature turn cryptocurrencies into almost perfect collateral.
But "almost" is the key word here; obstacles come from extreme volatility. Giving $700 against cryptoasset valued at $1,000 today, no one can be sure that collateral price won’t drop below $700 tomorrow.
Problems of Low LTVs and Liquidation Risk
There’s a proven model to cope with crypto market fluctuations. It operates perfectly for lenders, but mainly at the cost of borrowers. To be on the safe side, lending platforms put Loan-to-Value limit down, so our users can usually take no more than $500 for cryptoasset worth $1,000.
Liquidation point is set way too low as well. If the collateral value drops, increasing the LTV (no higher than 80 percent usually), the system will alert the borrower and ask him to add more fiat or crypto to maintain a healthy LTV ratio. Otherwise, cryptocollateral will be liquidated automatically to secure the lender’s funds.
How to Handle Volatility
Alex Faliushin, co-founder and CEO at CoinLoan, explained how his team found a solution to the crypto-lending issues:
“It was obvious that liquidation approaches are far from perfect. Over the past year, we’ve been testing new risk-management ideas. Today we have a solution that makes things as convenient as possible for borrowers.”
In short, CoinLoan’s dynamic liquidation system allows cryptocollateral to become resistant to market movements. Liquidation point is estimated for each loan individually and depends on the interest rate. For loans with an interest rate of up to 12 percent, the threshold is expected to be 92 percent, for those between 13 percent to 24 percent it will be 91 percent and so on. In all cases, liquidation may only occur when LTV is over 90 percent.
“Such a high liquidation threshold enables us to increase the LTV limit as well. In other words, a borrower gets more money for his crypto. Today, CoinLoan platform is open to 70 percent LTV loans; it’s one of the best conditions on the market,” adds Alex Faliushin.