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Cred Secures $50 Million Global Credit Facility to Lend Against XRP

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16 minutes ago, Sharkey said:

Agree, but beyond the benefits to the individual borrowers, this is also a great vote of confidence in the long term value of XRP, which, in itself, is very good! 

I think it speaks for crypto in general. Not only the value but also the longevity. Credible and experienced people in the traditional financial industry are moving into crypto knowing full well a transition is on the horizon. Any growth we've seen over the last 2 years will be dwarfed by future growth. Currently, we're in Beanie Babies territory. I'm excited to see what happens this and next year in the retail markets but I can't even fathom the potential of 3, 5, 10 years from now. 

Edited by LordVetinari

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https://link.medium.com/jXLKzDiRYR

"By pledging your crypto assets to Cred, consumers get a secured line of credit, at 33–50% of the value of their crypto holdings. This loan-to-value (LTV) ratio provides a buffer for the volatility of the pledged collateral. If the LTV ratio increases to 75%, customers are requested to top up their crypto holdings, bringing the ratio back to 60%. If customers cannot increase their crypto holdings, Cred can liquidate part of the crypto-holdings for their customers on their behalf."

This is the most detailed info I have seen yet.

While I see this as an important step for the crypto markets maturation. This sets a "spot rate" on crypto's yield curve.

I sure hope people dont take loans out on their bitcoin, only to watch it crash, and end up being sued or have their position sold by Cred. 

As time ticks, we should see more of the yield curve fill in, so eventually crypto will have all of spot, short, and long term yields.

That said, I'm not quite sure how a longer term yield can be constructed on digital assets that dont have any utility value, because there is no future value to discount.

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26 minutes ago, KarmaCoverage said:

This sets a "spot rate" on crypto's yield curve.

Thanks for your thoughts, very insightful, as always.

What do you mean by the quote above ? 

And what do you think interest rates would look like?

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2 hours ago, KarmaCoverage said:

I sure hope people dont take loans out on their bitcoin, only to watch it crash, and end up being sued or have their position sold by Cred. 

taking loans on bitcoin what could go wrong..

Edited by matteo

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1 hour ago, WillGetThere said:

Thanks for your thoughts, very insightful, as always.

What do you mean by the quote above ? 

And what do you think interest rates would look like?

https://www.investopedia.com/terms/s/spot_rate.asp .. "Spot rate is the price quoted for immediate settlement on a commodity, a security or a currency."

I may be mis-using the term slightly, but regarding a Yield Curve, I consider the "spot rate" to be the shortest term interest rate. 

A yield curve charts interest rates at different time frames https://www.investopedia.com/terms/y/yieldcurve.asp

842582669_Yieldcurve.jpg.174aff3f3c59c83f196e318f3dd30ada.jpg

Basically, I think as these markets mature (this may be 3+ years out) we should see longer term lending instead of just this "spot rate line-of-credit". Longer term loans measured in years, or decades, come with additional liquidity risk (because the crypto cant be sold, till it is paid back to you).. therefore you should get higher interest rates on the longer loans. Once we see that happening, then Crypto should have a more mature looking yield curve. 

The caveat I see would apply to digital assets without any utility value, there is not much reason to be borrowing them. Unless you want to short something, or maybe work up some kind of derivative service. If there is not any future utility then there is sort of no reason to borrow the thing.

However if people have a lot of crypto, dont want to sell it, yet do want to get some liquidity for their value a Line-of-Credit LOC is a reasonable offering. Think of having a home, you dont want to sell, but you want some liquidity so you borrow against it. The interest cost of borrowing, is worth paying if you want the liquidity.

Edited by KarmaCoverage

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1 hour ago, matteo said:

taking loans on bitcoin what could go wrong..

I said a few days ago, that I think when Bitcoin really crashes there will be suicides. Many people have their life identity way wrapped up into it, and I hope I'm wrong and BTC is great forever, but I just dont see that card in the deck.

I'm also not sure ETH has long term viable legs. There is Codius for smart contracts, and you really dont need a whole distributed ledger with a token like Ether to get the "smart contract" job done in a distributed way.

XRP has a real use case, clients, and utility value +++... and even that has some real risk of not seeing adoption (regulations?). When the Central Banks do CBDC (possibly with a distributed ledger) I think it may more directly compete with Bitcoin, and conversely help solidify the foundation under XRP as the cross boarder bridge asset with the deepest liquidity.

Bitcoin still has deeper liquidity than XRPLedger I believe? Currently it's only utility value is from being the de facto "bridge asset" between fiat and all the other digital assets. Part of the reason these markets move in sync, is because most of the orderbooks are Digital Asset : BTC, so they are using the same denominator. These XRP based exchanges are a bad sign for BTC as a bridge asset, seeing some XRP competition for it's only real utility value.

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What happens to your XRP if someone defaults on their loan? I’ve been wondering about this for a while. Your xrp isn’t insured in any way through these companies in any way to protect the individual lender is it? 

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20 hours ago, KarmaCoverage said:

However if people have a lot of crypto, dont want to sell it, yet do want to get some liquidity for their value a Line-of-Credit LOC is a reasonable offering. Think of having a home, you dont want to sell, but you want some liquidity so you borrow against it. The interest cost of borrowing, is worth paying if you want the liquidity.

A loan could also be used as a kind of "stop-loss" - say you're thinking about selling but of course you can't be sure if it's headed up or down, you could take out a loan which would be liquidated to pay off the loan if the price plunges below your 60%.

This would give you a way out besides a direct sell, and give you a fair chance at possible upside price movement. Not sure how this is handled tax-wise, don't know if you could claim a loss on your income tax or not.

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58 minutes ago, GiddyUp said:

Not sure how this is handled tax-wise, don't know if you could claim a loss on your income tax or not.

A loan is not taxable income, so no tax should be due, like an LoC on a real estate asset.

Unlike real estate's mortgage interest, which is a tax deduction on personal tax filings, I would be shocked if the interest paid on a Crypto LoC could be deducted.

That may be different if you own your crypto through a corp/LLC entity, but you'd obviously want personalized professional accountants to guide you.

If the Exchange liquidated your crypto position at just the right amount to cover the loan..

1. I think your tax burden would be the Capital Gains/Loss on your Crypto.

2. If you defaulted on the loan, because somehow the Exchange was not able to liquidate your position for enough value to cover the loan.. the unpaid portion of the loan probably taxed as ordinary income ncome.

I'm just guessing here, not a CPA.

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