A collateralized loan is a type of borrowing where a client stakes an asset against the funds they are receiving. With BlockFi, clients send us crypto in exchange for USD or GUSD stablecoin. Once the loan is paid off, clients get their crypto back, along with all the potential increases in value that occurred over the duration of the loan.
What is collateralized lending and how does it work?
Collateralized borrowing is very popular in the lending world. Many different kinds of assets or securities can be leveraged in order to take out a loan. These assets can include real estate, cars, travel, and business assets.
The amount of collateral borrowers need to stake is determined by the loan’s LTV (loan-to-value) ratio. BlockFi offers LTVs up to 50%. Based on our extensive risk modeling, we determined that this is a sufficiently conservative rate, which helps our clients limit exposure to triggering events when the market faces volatility. Click here to learn more about BlockFi’s LTV calculations.
Why Do I Need Collateral For My Loan?
Why would I need to take out a personalized loan with collateral? Collateralization limits the risk exposure on the lender’s side. For example, the crypto markets are relatively volatile. If the value of your collateral decreases past a certain amount, the lender can liquidate a portion of the collateral to bring the loan back to good standing. The lender gets the reassurance of holding the collateral, the borrower gets to leverage the value of their long-term cryptocurrency investment and get it back once the loan is paid off. Win, win.
Benefits of a Collateralized Loan
Borrowing against your crypto assets enables you to access the value of your Bitcoin (BTC), Ether (ETH), or Litecoin (LTC)without having to sell. With BlockFi, we can fund USD straight into your bank account in as few as 90 minutes. Applying takes less than two minutes.
An additional benefit is that a BlockFi loan does not trigger a cryptocurrency capital gains tax event, saving you the headache around tax season. Additionally, in some circumstances, the interest paid on your loan may be tax deductible against certain types of investment income. With that said, BlockFi does not provide financial or tax advice and you should consider your financial situation and seek appropriate financial and tax advice before deciding to use our product. Explore more within our Resources Center.
What Happens to My Crypto During a Crypto Backed Loan?
All BlockFi client’s cryptocurrency assets are deposited with our institutional custodian, Gemini. Gemini is a depository trust and licensed custodian with legal liability and insurance requirements for safeguarding deposits. They also have a perfect security history with no hacks or client fund losses. Additionally, increases in value or supported forked coins are returned to the client once the loan is paid off. Find out more about our crypto custody policies.
What are the legal protections that ensure the return my collateral?
We have numerous protections set up for return of collateral. The first is the loan contract – it outlines our obligation to return collateral once the loan is paid off. BlockFi operates under Article 9 of the Uniform Commercial Code, which governs secured lending and file a UCC-1 with the state you reside in. Additionally, we work with a 3rd party loan servicer that is set up to guarantee execution of loan contracts.
What Can I Do With My BlockFi Loan?
BlockFi clients use their loan for a number of reasons. Individuals can use their loans to buy a home, pay their taxes, or diversify their investment portfolios. Business owners also look to BlockFi to help with funding needs. Use-cases include funding payroll, paying off taxes, and expanding their business.
Explore our Use Cases in more detail.
BlockFi is the leading cryptocurrency to USD lender in the U.S. We have the largest lending footprint and the most affordable rates in the market. Additionally, our service does not require the use of a token, making it easier to obtain a loan. Applying takes less than 2 minutes and clients often go from application-to-funding in as few as 90 minutes.