Introduction to Digital Currency Lending
In recent years, the performance of digital currencies has gained significant attention, yet their use as collateral in lending has lagged. This gap has been particularly pronounced among mainstream consumers, as most conventional financial institutions, such as JPMorgan, have only started to experiment with accepting cryptocurrencies like Bitcoin and Ethereum as collateral. Interestingly, such options have primarily been restricted to large institutional clients, like hedge funds, rather than average individuals.
The Shift in Wealth Among Younger Generations
As homeownership rates for younger generations in the U.S. plummet, Millennials and Gen Z are increasingly finding their wealth tied up in digital assets. This trend has made traditional lending routes less accessible for those who are cash-poor but hold substantial crypto wealth. In fact, research suggests that these young investors often have an equal chance of possessing cryptocurrencies as they do of owning a home.
Innovative Solutions in Crypto-Backed Lending
An innovative player in this realm is Figure Technologies Solutions, Inc., a fintech company that debuted in 2019 with a mission to bring private credit yields within reach for regular investors—not just wealthy financial institutions. Originally focused on tokenizing Home Equity Lines of Credit (HELOCs) as real-world assets (RWAs) recorded on the blockchain, Figure has evolved its offerings.
Introduction of Crypto-Backed Lending
As of September 2024, Figure has introduced crypto-backed lending through its decentralized platform, Figure Markets, enabling users to leverage their Bitcoin (BTC), Ethereum (ETH), or Solana (SOL) as collateral. This model allows investors to maintain their position in the crypto market while also accessing cash, providing the dual benefits of capital growth and a potential avenue to sidestep capital gains taxes—which can hit up to 20% in the U.S.
Loan Details and Management
Borrowers can secure loans amounting to 75% of their cryptocurrency’s value, with interest rates contingent on the Loan-to-Value (LTV) ratio: an initial rate starting at 8.91% (9.999% APR) for loans up to 50% LTV, and climbing to 11.50% (12.62% APR) for 75% LTV loans. The collateral is managed using advanced multi-party computation (MPC) technology, ensuring that users’ private keys are safeguarded by dividing them into separate shards, thus mitigating the risk of exposure.
Borrower Control and Protection Features
Furthermore, borrowers maintain control over their collateral, which is stored in a distinct wallet allowing for real-time access to its on-chain status. The collateral will remain untouched and unutilized for any sort of rehypothecation, as clarified by a Figure representative. Additionally, users may opt for Liquidation Protection, a feature designed to shield borrowers from abrupt market downturns by providing them with time to manage their positions instead of facing immediate liquidations.
Flexible Loan Terms
During the course of the loan, borrowers have the flexibility to make monthly interest payments or defer them, as long as their loan account remains in good standing. Upon settling the loan, any remaining collateral, along with any fiat, will be returned to the borrower. Presently, Figure’s crypto-backed loan services are available in all states except Idaho, Illinois, Kentucky, Maryland, Mississippi, South Dakota, Texas, Vermont, Virginia, and the District of Columbia, with plans for future expansion.
Incentives for New Users
Additionally, users can sign up with the Figure Markets app and receive a bonus of $50 when they deposit a minimum of $500.
