Although it may be possible to use other coins to secure, or partially secure loans, it is by far not the only focus of the model. The main focus is based on commercial relationships with retailers or service providers, where such accounts or products can be controlled for the period of time the loan is outstanding. The problems with focusing only on altcoins or coloured coins is that their market values can vary dramatically, creating a mathematical formula the borrower may use in their decision making process, resulting in a purposed default on their loan; leaving us stuck with worthless collateral.
The industry currently suffers from a default rate of around 17.5%. Most of this is due to a lack of proper securitization as well as a lack of borrower due diligence. The reason Peers suffer most of this loss rate is due to the lack of screening of the respective Borrowers. Our credit rating system is far more stringent than what we have been able to uncover in the current industry, which relies more on social media connections than anything else. We would rather originate fewer loans, with higher quality, and lower risk, than open the floodgates to anyone or everyone who prefer the shroud of anonymity. We cannot fulfill our project plans when borrower quality is not compelled to conform to the needs of the lender(s).
Securitized loans is something that the lender must create through relationship building with the very service/product providers seeking to tap into the extremely large market that cryptocurrency affords to them (substantially more consumers with access to more consumer capital). Moreover, the use of proper legal structures creates an environment of enforceability that we also do not see in this particular industry. You need the legal document(s) in place to facilitate the ability to recover the very assets which were loaned against. This is the main reason Borrowers must sign a promissory note for every loan they request. Promissory notes are legally binding in most countries of the world. For the U.S. and Europe, they are all that is required to pursue legal remedies within the courts or with credit collection agencies.
Our Credit Rating system is stringent. The less information the Borrower is willing to divulge the less they can borrow and the higher the interest rate. That is fairly straight forward, but with little or no information given, with proof of such information, you cannot even borrow on the platform. There are no E-class Borrowers on Bitlend. Moreover, if you miss a payment date, chances are your credit rating will drop to E regardless, because we just do not subscribe to the concept of lending money to pseudo-anonymous borrowers. You need to visit the local loan shark on the nearby street corner if you want that kind of loan, without strings attached, but even then, the loan shark knows who you are, and where you live and work.
If/when we decide to use altcoins or coloured assets as collateral, the Borrower will relinquish control over those assets by depositing them to a locked wallet on our platform. The requirements for loan performance will be the same, in that the risk of asset loss will be high should a missed payment or default occur. I have “considered” converting the collateral at the time of deposit, replenishing the coins when the loan fully performs. We capture the then market value of the coins, precluding a diminished value in the future (for loans over one or two weeks) based on market analytics of the coin’s exchange value history. Example: If altcoin 1 has a long-term history of devaluing at an annual rate of 35%, then the expected market value of the coin is less than initially valued as collateral for loan, when the payback period is greater than 30 days. It is risk mitigation that we have to address in a financial model. If I sell the coins on the market today, and the loan performs, we buy the coins back from the market several days before the last payment is due, and replenish the Borrower’s locked wallet. This is only a concept. We are in the finance business, where risk should be borne by the borrower, not the lender, under crytocurrency environmental conditions. We are not setting out to be the easiest lending platform in this space, but the most secure and most comprehensive model, engaging in the building of consumerism through financial economic modeling. Initially, it starts in the mode we have, advancing over a very short period of time. When referring to “staking” coins, I see no model where this would work as collateral, in that there is no way we can secure those coins while maintaining the staking aspect of the underlying coin. At this moment in time, we have no plans on the board for staking any coin. We leave that to their respective coin networks. It is not the typical function of a bank-like entity, to lock up capital into staking cryptos, which may or may not be fully leveraged in the borrowing/lending model.
Depending on the product/service being sold (through us as lenders) account ownership would be started by us, not the borrower. We would hand the account over to the borrower once they have satisfied their loan requirements in full. In the case of altcoins, that is explained above. As a borrower, you should not be able to hold your own assets, independent of the financial institution, while simultaneously using the same assets as collateral for a loan, with the same institution. In essence, it is not a collateralized loan anymore, but just a promise to liquidate assets should financial difficulties arise from which the borrower is unable to satisfy their loan requirements. Bitlend would always act as temporary holder of all collateral used to secure loans on the platform, not the peers, and certainly not the borrowers. The definition of collateral is that which can be readily taken by the lending institution, either through repossession or through direct liquidation of the held asset within the control of the institution.
I know, it sounds complicated, which it is.