Crypto lending can still survive the bloodbath, analyst says

Crypto lending can still survive the bloodbath, analyst says
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Crypto lending can still survive the bloodbath, analyst says

According to one Bitcoin researcher, bear markets are far more harsh for crypto lenders than for cryptocurrency enterprises that do not leverage consumers' deposits.


According to some industry analysts, the continuing bear market in cryptocurrency markets is too damaging for industry lenders. But the notion of crypto financing can still survive the bloodbath.

Crypto assets as collateral for loans

Borrowers can utilize their crypto assets as collateral for loans in fiat currencies like the US dollar or stablecoins like Tether (USDT). This method allows users to obtain funds without selling their coins and repaying the loan at a later date.

According to Josef Tětek, Bitcoin (BTC) analyst at the crypto cold wallet firm Trezor. Crypto firms that run their business on a fractional-reserve basis are exposed to greater risks during bear markets, Cointelegraph reported.

The fractional-reserve model in traditional banking is a system in which only a portion of deposits are guaranteed by actual currency. According to Tětek, crypto lending organizations are “certainly running a fractional-reserve business” to provide yields to their customers.

According to Tětek, sharp declines in cryptocurrency prices are more bearable for crypto businesses that do not provide lending services and do not leverage users’ deposits. This allows them to survive the domino effect of falling prices and companies going under.

To survive the continuing crypto loan crisis, cryptocurrency lenders must address a major issue involving short-term assets and also short-term liabilities, according to the analyst, who stated:

“Crypto lending as a concept can survive this crisis, but the sector must address the maturity mismatch issue. If someone else borrowed my assets and I received a yield as a return, I must wait for the borrower to repay before I can withdraw.”

Tětek went on to warn that lenders who offer 100% liquidity on assets that are lent out at the same time are bound to run into liquidity problems.

By Elah Mae Ariate Wozinga Staff

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