June 24, 2019
In the course of a couple of years, crypto loans have evolved into a multi-faceted strategy that can help crypto traders get more leverage. Today, we’re seeing a new trend on YouHodler called “chain loans” that are helping our users multiply their portfolio by 300% in some cases. Here’s how it works.
There’s a unique trend on YouHodler right now. Nearly 10% of our clients are getting cash loans and then using this cash to purchase more crypto which they then use as more collateral on yet another loan. Each client requests an average of 3,500 EUR per loan and completes around 3-5 loans for this “chain loan” scheme. Top currencies for clients, in this case, are BTC, LTC, and Bitcoin SV. Now, let’s take a peek inside the minds of these traders and see crypto loans and chain loans in action.
For this example, let’s say 1 BTC = 10,000 USD. The client takes out a crypto loan for 1 BTC with a 90% LTV and receives 9,000 USD in cash. The client then converts this fiat into BTC on YouHodler and then uses that BTC as collateral for a second crypto loan. The chain of loans looks like this:
1st loan: 1 BTC
2nd loan: 0.864 BTC
3rd loan: 0.746496 BTC
4th loan: 0.644973 BTC
5th loan: 0.557257 BTC
In just a few quick steps, the user suddenly has 3.812726 BTC in collateral starting with just 1 BTC. When it comes time to repay the loan, the total amount will be just 31,701.23 USD (excluding the 5015.31 USD the client has on hands from the final loan).
The key benefit of the above is the value. The user received 2.812726 additional BTC for 31,701.23 USD. Hence, 1 BTC costs only 11270,64. That’s just +12.7 % of current value. Then imagine if BTC price grows +15% – you can get 2.812726 BTC for less.
Perhaps the best part of this strategy is that it’s a moderate risk. Users can always repay the crypto loans back using the same “chain” strategy. For example, users can repay the smallest loan in the chain, get back some BTC and convert this BTC to fiat to use towards paying back the next loan in the chain. Take note that the amount taken from the 5th loan in the chain will not be enough to repay the 4th loan. The user will need to add a small amount to this in order to pay back the 4th loan (applicable for a case when the price is less than +12.7%). By repaying the chain of loans using this method, clients only need to pay the loan interest for the additional 2.812726 BTC in order to get their 1 BTC (original collateral) back.
The only downside to this “chain of loans” strategy is the 0.04% commission YouHodler charges when converting USD to BTC and BTC to USD for chain loan repayment. However, we have good news!
We are currently implementing a variety of new features to help control loans. Just recently, we released an increase LTV option that lets users increase LTV without having to close their loan. Another new feature will help make this “chain of loans” process much more efficient and affordable. The feature, dubbed “Turbo Loans” was inspired by our very clients and it will eventually reduce USD-BTC conversion charge or even eliminate it altogether.
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