Blockchain Startup, Deribit Bridges Gap between Crypto-USD Loans

Jul 26, 2018 at 10:38 // News
Deribit, as a liquid crypto option exchange, provides fully protected loans.

Cryptocurrency traders who are in need of a loan, but don't want to sell their cryptocurrency holdings are set to benefit from Deribit blockchain powered loan solutions. The Amsterdam based Derivatives company, who started its first forays into cryptocurrency by offering Bitcoin Futures and Options trading services, will now enable borrowers to post crypto assets as loan collaterals without the fear of a margin call.

Over the years, several blockchain platforms have tried providing crypto-backed lending services for the global market. However, these companies have issued less than $100 million loans, unable to service the needs of the market and highlighting the difficulties in putting up and accepting crypto assets as collateral due to margin calls. Cryptocurrencies volatility affects crypto backed lending especially when there is a significant drop in price. Both parties of borrowers and lenders are equally affected. Lenders risk losing their funds and borrowers are forced to replenish their collateral by fixing the drop or reducing the loan. The risk involved for both parties is notable for keeping the lending market in crypto world small. 

Deribit is turning this problem around. 

A Dedicated Solution for Crypto-backed Loans 

Deribit platform reduces borrowers and lenders risk through its innovative derivatives concept, eliminating the problems of margin calls. Derivatives works as a contract that owns its value to the performance of an underlying asset. Deribit’s solution leverages the Put-Options of derivatives to facilitate risk-free, crypto-backed loans for both lenders and borrowers. Put-Option acts like an insurance policy for the collateral. 

A Put-Option is simply the right to sell the collateral at a predetermined price, called the ‘strike’ price. This ensures that-the collateral value never drops below the value of the loan, making it possible for borrowers to always repay loans, while the lender has minimum fear of risk. With this option, risk-free USD loans backed by cryptocurrency collateral is now a reality for the industry. 

Securing Loans with Deribit 

Accessing loans on the platform is a simple and intuitive process, using the following illustration:

  • A $50,000 loan set to mature on the 28th of December 2018 with an interest yield of 14% annual interest rate can be issue on the platform using put option, taking into account the insurance premium to be paid. Insurance premium for the relevant put options maturing by the 28th of December, 2018 was $1,499 as at July, 13th, 14:00 CET
  • The borrower pays the lender a total interest of $3,203 and after the cost of the put option, the lender will still have $1,672 of risk-free, interest margin. This makes the interest margin over the period 3.3% or 7.2% annually.

Deribit will offer 20 options for strike price that can cover the loan. Hence, borrower's collateral are secure without risking the future value of their assets. The platform gives lenders complete control by paying for the Put-option for strike price. This action will increase lender's interest rate on the loan, while benefiting borrowers’ assets by eliminating margin call. 

Deribit, as a liquid crypto option exchange, provides fully protected loans. However, Deribit loan is only available in one cryptocurrency; Bitcoin. The company plans to roll out more cryptocurrency options in the near future, as it tries to reposition itself as a leader in the crypto industry. 

About Deribit 

Deribit is based in Amsterdam. Founded in 2015 by John Jansen, who teamed up with other professionals including Marius Jansen, Sebastian Smyczýnski and Andrew Yanovsky. The platform is an exchange platform for Bitcoin Futures and Options trading services. 


Find out more about Deribit here – http://www.deribit.com/
Read the Deritbit Official blog here - https://blog.deribit.com/
Follow Deribit on Twitter – https://twitter.com/DeribitExchange
Chat with the Deribit team on telegram –   http://telegram.me/deribit

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