Značka: Loans

What are flash loans in DeFi?

Similar to traditional loans, flash loans are expected to be paid back in full eventually. However, there are also marked differences. In typical lending processes, a borrower loans money from a lender. The amount is expected to be paid back in full eventually, with interest, depending on the terms discussed between the lender and the borrower.  Flash loans operate on a similar framework but have some unique terms and premises: Use of smart contracts A smart contract is a tool used in most blockchains to ensure that funds do not change hands until a specific set of rules are met.  When it comes to flash loans,  the borrower is required to repay the full amount of the loan before the completion of the transaction.  If this rule is not followed, the transaction is reversed by the smart contract and the loan is nullified as if it never took place at all.  Unsecured loan Unlike a traditional loan, a flash loan is an unsecured loan, meaning no collateral is needed.  However, this does not imply that the flash loan lender does not get their money back in case of non-payment. In a traditional loan, collateral is typically put up to ensure that the lender receives the money back in the event of non-payment. Flash loans, however, happen within a very short timeframe (usually a few seconds or minutes). This means that while no collateral is needed, the borrower must return the full amount they borrowed right away. Instantaneous transactions As opposed to longer processes for traditional loans, flash loans are processed faster, thanks to smart contracts.  Getting a traditional loan approved usually is a long process. A borrower must submit documents, wait for approval, and pay the loan back in agreed increments within a stipulated period that may run into days, months or years.  On the other hand, a flash loan is expedited in an instant, which means that the loan’s smart contract must be fulfilled during the transaction for which it’s lent out. Therefore, the borrower is required to call on other smart contracts, using the loaned capital to perform instant trades.  The kicker: All this must be done in a few seconds before the transaction ends. Hence, the name: flash loans.

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El Salvador explores low-interest loans backed by Bitcoin

It’s full steam ahead for El Salvador’s Bitcoinization. The next point on the orange agenda is in providing low-interest loans backed by Bitcoin (BTC) to small and micro-businesses.While the details of the BTC loans are currently not disclosed, Mónica Taher, an advisor for the government of El Salvador, was straight-talking in a Facebook Live Audio held yesterday. The discussion was called “Bitcoin loans with lower interest rates.” Paul Steiner the President of CONAMYPE (the national institute for small and micro-businesses) shared that the implementation of loans would work with the government-created El Chivo wallet.El Salvador’s business landscape is dominated by small and micro-businesses and Bitcoin-backed loans are an opportunity to remediate the situation. Steiner illustrated: El Salvador has roughly 1.2 million businesses in the country. Roughly 66% are micro-businesses or “subsistence” businesses. Over 90% of micro-businesses are self-funded via informal loans or loan sharks.He cites the example that a $100 loan taken out by a micro-business will typically come with terms of full repayment in 20 days while the interest rate could be up to $15 a day. In some cases, the annual interest rate for such loans “exceeds 10,000%.” Ultimately, the interest rate provided by BTC-backed loans would be lower than that of informal lenders, loan sharks, and banks. Andrea Martia Gomez, a project manager for Acumen, a DeFi lending protocol shared that “some crypto enthusiasts in El Salvador are already using crypto solutions such as Defi as they offer an ease of use and a higher interest rate than banks.”Related: El Salvador’s Bitcoin wallet onboards 4M users with Netki partnershipAlessandro Cecere, Community Manager for Ledn, a Canadian Bitcoin company also participated in the discussion. Ledn recently launched BTC-backed mortgages. He asked if El Salvador might copy their example and if Bitcoin might be considered as collateral for mortgages in the future. Steiner was open to the discussion and optimistic about the future of Bitcoin. However, his priority is to improve the business environment for SMEs. When prompted in the chatbox about loans for other avenues or housing, Mónica Taher reiterated that the loan product would only be available to small and micro businesses for the moment, “we will discuss mortgages later.”Steiner summed up the vision when referring to the challenges that micro-businesses face in El Salvador:Businesses need an entry point for financing: Bitcoin is that opportunity.

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Genesis issues $6M NFT-backed loan to Meta4 Capital

Genesis Global Capital has completed one of its first purely NFT-backed loans for $6 million to Meta4 Capital, a Miami-based Web3 focused investment management firm. This loan is notable not just for its amount but for solely using nonfungible tokens (NFTs) as collateral instead of including broader liquid collateral. Meta4 operates as an NFT VC backed by Andreessen Horowitz, specializing in acquiring presumed rare and historically significant NFTs.The proceeds of Genesis’ loan were used to finalize Meta4’s purchase of three NFTs part of Sotheby’s Metaverse “Natively Digital” October NFT auction: the $3.4 million record-setting gold Bored Ape Yacht Club #8817, the Rare Pepe PEPENOPOULOS for $3.6 million and an NFT from FingerprintDAO’s Mitchell F. Chan for $1.5 million. These acquisitions acted as bridge capital until Meta4 closed a Series B round on Dec. 1 for an undisclosed amount. All Meta4 investors received a proportional share of each item procured. Brandon Buchanan, Meta4 Capital’s CEO and co-founder, told Cointelegraph that NFT-backed loans provide a better way to manage risk on the underlying asset, usually Ether (ETH).“NFTs that would otherwise be in a mostly static state are now being put to work and we’re able to financially engineer returns in excess of the interest rate for our investors either by buying additional NFTs or earning yield through DeFi protocols.”Buchanan also expressed his “thrill” to be partnering with a brokerage like Genesis, who provides “credence” and value to NFTs and NFT-backed lending.Related: NFT-collateralized loan platform Arcade raises $15M in funding roundGenesis’ VP of Institutional Lending, Roshun Patel, affirmed to Cointelegraph that the company is accepting what are considered as “blue chip” NFTs for now.“We’re looking at the most liquid, high individual value NFTs. Right now, only a few CryptoPunks and Bored Apes fit into that category, as well as select Pak and Nouns NFTs,” he said.NFT as a novel form of collateral is being spearheaded by crypto native companies and protocols. The loan between Genesis and Mera4 Capital further advances the growth of financial products for institutional investors in the NFT asset class.

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Crypto exchange Kraken’s new NFT marketplace to issue loans

Kraken founder and CEO Jesse Powell recently shared in an interview with Bloomberg News that the crypto exchange will launch a nonfungible token (NFT) marketplace that will enable users to borrow funds against their NFTs. Powell explained that the company plans to enter the NFT space in early 2022 and hopes to add the feature to determine the liquidation value of an NFT and if it can be put up as collateral for a loan.“If you deposit a CryptoPunk on Kraken, we want to be able to reflect the value of that in your account,” said Powell. “And if you want to borrow funds against that.”The value of NFTs, however, is all over the spectrum and only a small percentage of token owners hold a digital collectible valued for as much as a CryptoPunk, whose floor price is 66.9 Ether (ETH) or $273,673 at the time of publication.According to Powell, NFT utility will explode next year:“Phase one was speculation, phase two is buying art and supporting artists, phase three is going to be functional uses of NFTs.”Additionally, Kraken recently acquired Staked, an infrastructure platform that allows for non-custodial crypto staking, in an effort to attract new investors. Kraken clients will now be able to earn crypto rewards and yield while retaining control over their digital assets.Kraken was founded in 2011 and has become one of the largest crypto exchanges worldwide, ranking among the top in terms of average liquidity, volume and digital asset reserves, according to data from CoinMarketCap.Related: Nexo partners with Three Arrows Capital to launch NFT lending & art financing serviceKraken’s announcement demonstrates how NFT-backed loans are becoming increasingly commonplace as more DeFi platforms, such as Arcade and Nexo, are offering this new loan model. As Cointelegraph recently reported, Arcade closed a $15 million funding round in December as part of a broader effort to grow its offerings and attract more investors to its collateralized NFT platform. 

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Nexo partners with Three Arrows Capital to launch NFT lending & art financing service

Nexo, the crypto borrowing and exchange platform, has launched an NFT Lending Desk in partnership with NFT hedge fund Three Arrows Capital. The new lending desk caters to over-the-counter, or OTC, clients to offer crypto credit backed by NFTs. Nexo is one of the first crypto lenders to allow customers to borrow stablecoins, ETH, and other cryptocurrencies using certain NFTs as collateral. The company stated that in its initial iteration, the service will accept Bored Ape Yacht Club and CryptoPunks NFTs, with more collections on the way. Clients can also use issued lines of credit as a means of art financing by executing further NFT purchases with t borrowed funds.In a statement shared with Cointelegraph, Nexo Cofounder and Managing Partner Antoni Trenchev said:“Our partnership with Three Arrows Capital is a definitive move towards providing financial instruments & Web 3.0-native MetaFi. As we continue to discover the full scope of this asset class, services like Nexo’s lending will be in high demand to unlock NFTs’ underlying value while allowing users to retain ownership.”Related: Fidelity and Nexo are entering institutional lending marketBy collaborating with Three Arrows Capital, Nexo said it hopes to expand its existing crypto credit issuance services by providing the NFT Lending Desk with risk hedging, valuation and liquidation mechanisms. Additionally, Three Arrows Capital became the first NFT Lending Desk client with an NFT-collateralized crypto credit issued by Nexo.Three Arrows Capital Director Kyle Davies added that they are “happy to partner with Nexo and demonstrate our recognition of NFTs’ promise as a financial instrument – one that requires appropriate, high-quality financial tools to be fully leveraged.” Related: Three Arrows buys 156K ETH in the weeks after CEO ‘abandoned ETH’ In the coming months, Nexo said it plans to increase its offerings of investment-grade products and accessible and secure exposure to the NFT market, according to the company. As the NFT-backed lending market grows and NFT utility increases, other lending platforms such as NFTfi, ETNA Network and Drops Loans are also offering similar services to Nexo.

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