Fabian Dori, the chief investment officer at digital asset bank Sygnum, says that banks offering crypto-backed loans prefer crypto collateral in the form of onchain assets rather than exchange-traded funds (ETFs), and using onchain collateral can benefit borrowers.
Dori said that onchain assets are more liquid, allowing lenders to execute margin calls for crypto-backed loans on demand and offer higher loan-to-value (LTV) ratios to borrowers because the lender can liquidate the collateral in real-time. Dori told Cointelegraph:
“It’s actually preferable to have the direct tokens as collateral, because then you can do it 24/7. If you need to execute a margin call on an ETF on Friday at midnight, when the market is closed, then it’s more difficult. So, direct token holding is actually preferable from that point of view.”
Loan-to-value ratios in crypto refer to the total amount of a loan versus the collateral backing the loan, like Bitcoin (BTC), Ethereum (ETH), or any other tokens accepted by the lender.
Lending in crypto by centralized institutions sharply declined during the 2022 bear market, which saw the blow-up of several crypto lending firms, but is on the rise again. Source: Galaxy
A higher LTV ratio means the borrower is able to access more credit in relation to their posted crypto collateral, while a lower LTV means they will get a smaller loan for the same amount of collateral.
Crypto-backed loans are still in their infancy, Dori said, but he was confident that the sector would continue to grow as crypto gains widespread adoption.
Financial institutions are steadily embracing loans secured by crypto as crypto lenders go public on US stock exchanges, and traditional financial (TradFi) firms warm up to the idea of accepting crypto as loan collateral.
Related: South Korea caps crypto lending rates at 20%, bans leveraged loans
Crypto lending debuts on Wall Street as TradFi warms up to crypto-backed lending
Figure Technology, a crypto-backed lending company, made its debut on the Nasdaq exchange, a tech-focused US stock exchange, on Thursday.
Shares of the company surged by over 24% during intraday trading on the first day, and the company currently has a market capitalization of over $6.8 billion, according to Yahoo Finance.
Financial services company JP Morgan is also considering offering crypto-backed loans to clients, a development that would take place sometime in 2026 if the legacy financial giant moves forward with the idea.
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