The Future Of Bitcoin Lending? \ stacker news ~bitcoin

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3677 sats \ 64 comments \ @siggy47 16 Jan bitcoin

I was at a bitcoin only investor meeting this week (talk about a fish out of water) and I was talking to a representative from Arch Capital, who told me his company makes bitcoin backed loans. I quizzed him a little, and he acknowledged that the bitcoin would be held by a "trusted third party." He told me the name of this party, but I had stopped listening by then. I just nodded politely and sipped my Perrier.

When I got home I checked out his firm 's web site, which revealed that they made loans on all sorts of shitcoins, for a mere 14% per year interest.

During the afternoon presentation I learned about Debifi, an app still in beta and demo mode, which will provide decentralized lending through a smart contract. Although the docs seemed to infer that there were other options, it seems like loans are all made in stable coins. I would guess any other options, if they exist, would involve fiat and a centralized process anyway.

There are so many companies making loans right now: Ledn, Milo, and a million more. Many seem to take shitcoins as collateral.

I'm just wondering, has any stacker had experience taking a bitcoin collateralized loan?

Does anyone have a sense as to what direction the industry is likely to head?

Does anyone (other than @DarthCoin) just say fuck bitcoin loans?

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41 sats \ 1 reply \ @DarthCoin 16h

sorry but I cannot answer too much these days on SN... my old boy is dying and I have to give him more attention and care than to SN.

0 sats \ 0 replies \ @siggy47 OP 15h

Of course. That's more important. Take care of yourself.

41 sats \ 0 replies \ @south_korea_ln 22h

At some point, I got a loan for housing. That's it.

I never got the allure to get a loan for anything else. If I don't have the money, I don't buy it. As simple as that. When I pay for groceries, the cashier or machine always asks if I want to pay at once or in chunks.

If I were do that for one thing, I'll end up doing it for ten things. Eventually, I'll continuously be paying the same amount as I would be paying with single-time payments, but with interests on top. Nope, not for me.

Good I don't have to worry about paying for my basic necessities.

I just don't think I have the risk appetite, or the knowledge, to play any of these games.

80 sats \ 6 replies \ @denlillaapan 16 Jan

Yup.

Firefish.io

In time, I'll probs have a thing or two to say about it

105 sats \ 1 reply \ @Undisciplined 16 Jan

I'm looking forward to it.

Credit markets are super important and Bitcoiners tend to completely underappreciate them.

There won't be a bitcoin standard without bitcoin loans.

38 sats \ 0 replies \ @siggy47 OP 16 Jan

I agree

41 sats \ 3 replies \ @denlillaapan 16 Jan

Webinar with relai next week, in case peeps are interested

41 sats \ 0 replies \ @nitter 16 Jan bot

https://xcancel.com/relai_app/status/1879517888538894539

24 sats \ 1 reply \ @south_korea_ln 22h

Don't think I'll have time, but will be eager to read your report on it. Not because I want to get such a loan, but very interested in the dynamics. How are they (supposedly) implementing the following claim (emphasis mine)

borrowing and lending against it (while being 100% self-custodial).

141 sats \ 0 replies \ @denlillaapan 21h

it's locked up in a smart contract, script yada-yada technobabble.

To secure a Firefish loan, Bitcoin collateral is locked through a 3-of-3 multi-signature contract which ensures safety and prevents anyone from accessing it. The collateral only moves when a set of predefined criteria, such as repayment of a loan, are met. The escrow address on which the collateral is stored is generated by the Borrower themselves.

https://docs.firefish.io/faqs

51 sats \ 1 reply \ @crrdlx 17 Jan

And like clockwork... https://www.coinbase.com/loans

10 sats \ 0 replies \ @siggy47 OP 17 Jan

I saw that! They burst on the scene and already have claimed the worst lender honors.

174 sats \ 7 replies \ @crrdlx 16 Jan

So, Alice has some BTC and wants a new car. She doesn't want to sell her BTC for cash to buy the car. Her preference is to use the BTC as collateral, get a loan in fiat, pay it back like any other loan with the lender's interest, say 60 months. At the end of the 60 month's, Alice has a 5 year old car, it costs her more than had she bought with BTC on day one because of the interest, but she still has her BTC along with the car. Personally, I see this as a wise move.

I see only two possibilities loan-wise though, both requiring trust:

A third party holds the bitcoin...both parties must put their trust in them. This option would mean relinquishing ownership of your bitcoin (ouch!) by sending it to the third party. You would no longer hold the keys to the coin (ouch!). Even if Alice proved to the lender that she controlled the keys, there's no way a lender would allow her to hold the bitcoin/keys on a promise, "Oh yeah, if I don't pay back the loan, I'll send you my bitcoin." In the same way, Alice wouldn't trust the lender who said, "Just send the bitcoin to me, I'll hold it, then after you pay off the loan I'll send it back."
Smart contract...both parties must trust the smart contract is bug-free, hack-free (eg, The DAO). This option would also mean relinquishing your keys/coin by sending your BTC to the smart contract (ouch!). You'd really have to trust that the contract is foolproof (ouch!).

Down the road, I imagine firms and smart contracts will simply build trust over time. Kind of like depositing money in the bank, we trust that it will be there next week. That's not ideal, but are other options even possible?

I think of Makinac Island in Michigan. Every year it freezes over. Some imbecile volunteers to become the first person to drive a snowmobile across the ice to test if it's solid enough to support the weight. They might make it no problem, they might break through the ice and die. If they make it across, another person follows those tracks, then another, then another. Eventually there's a full-fledged back and forth highway across the trusted ice road. Maybe this is how the (a) trusted third party and/or (b) smart contracts will pan out.

10 sats \ 2 replies \ @Jer 21h

This example doesn't really work though. The car is the collateral. No Bitcoin or additional collateral is generally required for a car loan.

If Alice stops making the fiat payments, the lender sues Alice, repos the car, sells the car, and pursues Alice for the difference in costs between the sale price of the car and the total amoratized loan, plus court costs.

I think the Bitcoin loan game is going to focus on larger purchases like real estate and things like reverse Bitcoin mortgages so Bitcoiners can retire with cash flow.

21 sats \ 1 reply \ @crrdlx 20h

Fair enough about the car and loan. I should have chosen house or something bigger. Or better, something that can't be repo'd, maybe a loan to pay for a huge wedding.

10 sats \ 0 replies \ @Jer 20h

Yeah I think the Bitcoin loan thing will be fiat loans against Bitcoin.

The one area that has not been explored yet to the best of my knowledge is Fiat loans for the express purpose of buying Bitcoin. Amortized over a long term like a mortgage. A 2-3 multisig is PERFECT for this. The borrower defaults on the payment and the lender and the third key holder just take the payment out in sats. You don't have to sell a house or tie up the courts.

Many people would borrow $100K USD right now to get in at a whole coin, if they can pay back a 5% loan over 10 years or whatever.

21 sats \ 1 reply \ @emmanuelrosa 16 Jan

Exactly.

Given there's a good chance the BTC would have appreciated in fiat terms during those 5 years, the unrealized capital gains may be greater than the amount paid for the loan.

Kind of like getting a free car.

0 sats \ 0 replies \ @crrdlx 16 Jan

the unrealized capital gains may be greater than the amount paid for the loan

I didn't even think of that, but yes! If Alice had taken out a $25,000 loan five years ago at a 10% interest rate, she would have had to pay $37,500 total over those five years. That's a lot more for a 25k car, but that's interest and taking out loans. Her $25k worth of BTC would have gone up by 1,0026% (from $8,902 to $100,186 currently). I think she'd be okay with the extra car cost.

10 sats \ 1 reply \ @siggy47 OP 16 Jan

Great reply. Thank you! This should be its own post.

0 sats \ 0 replies \ @Sturdy 16 Jan freebie

Intelligent post! Love the dissection.

238 sats \ 6 replies \ @justin_shocknet 16 Jan

It's the new fintech-dujour because it's an arbitrage on major financial companies not having done it yet, but they will soon, and all these startups will be dead... a lucky few might get aqui-hired.

There's also some techno-babble mixed in, some claiming you don't give up custody, but this is bullshit because coin cannot simultaneously be collaterized and unilaterally self-custodied... at best it's 3rd party escrowed in a multisig for proof it hasn't moved.

To understand where its going one must understand it's not new, if you have a brokerage account for stocks you already have (or with a few clicks can have) margin access.

Margin is where you borrow against your equities, some use this for leverage but rich people use it to avoid taxes and never sell their assets. You can do this today with ETF's... have a million dollars in Bitcoin ETF's, borrow your living expenses against it month by month... you can effectively retire on that million dollars in coin without ever having to sell or pay taxes because you're just borrowing against it. Rates on margin are pretty good because its institutionalized, under 10% with any scale.

The problem with ETF's is if you have actual coin, you can't get to ETF from coin without incurring a tax sale... this will probably change too with like-kind exchanges... but sooner than later the likes of Fidelity, Cantor Fitzgerald, NYDIG etc will allow you to skip the ETF step and just give you margin on coin they custody for you. Those 3 already announced as much, I'd expect at least one of them to make it available by year end.

17 sats \ 5 replies \ @siggy47 OP 16 Jan

Great reply. Thanks

209 sats \ 4 replies \ @justin_shocknet 16 Jan

Let me follow up with a practical tip for anyone looking to get liquid with coin they hold...

Say for example you're married with a couple kids, you don't pay any taxes on capital gains as long as its under the 95k or so a year according to the income bracket table. Single with no kids? its a little less than half that or so.

Whatever that number is you don't pay taxes on in a given year, you can sell that amount of your physical Bitcoin and re-buy it in an ETF...

You can then borrow against that ETF on margin (most brokers should allow about 50% of previous days closing price). You can keep doing that as the value goes up. Think of this brokerage account as a credit card you never have to pay assuming Bitcoin goes up faster than you draw against it...

You just need to not be retarded and max it out at ATH's, if you do a margin call will forcibly sell some (incurring potential tax liability) to bring you back under that 50% threshold.

0 sats \ 3 replies \ @crrdlx 16 Jan

a credit card you never have to pay assuming Bitcoin goes up faster than you draw against it

I don't know anything about this kind of stuff, but this statement sounds crazy scary reckless to me.

0 sats \ 2 replies \ @justin_shocknet 16 Jan

this statement sounds crazy scary reckless to me

I don't know anything about this kind of stuff

That's why rich people use margin and not joe average, requires some knowledge of financial engineering

0 sats \ 1 reply \ @crrdlx 16 Jan

So, if you've knowledge of financial engineering, then using margin is not reckless? And you therefore become rich? Hmm. That sounds like, if you have NASCAR knowledge/skill, then driving really fast is not dangerous. No doubt it's less dangerous than Joe Average driving fast, but 200 mph is still 200 mph.

10 sats \ 0 replies \ @justin_shocknet 16 Jan

Rich people hire financial engineers, joe average at best only has access to schmucks that rich people haven't occupied already

Margin is more a tool of managing to stay rich, not get rich

In Bitcoiners case, it's a less risky and less expensive way to borrow against Bitcoin and stay Bitcoin rich instead of selling and paying taxes like a poor would

41 sats \ 0 replies \ @itsMoro 17 Jan

playing fiat games with bitcoin. they gonna learn

it is sincerely surprising to me that there are bitcoiners out there that sneer and shame shitcoiners and crypto traders, but then take the bait and think this kinda shit is somehow better, more responsible or any different. crazy

75 sats \ 1 reply \ @Bit_Alb 16 Jan

Does anyone (other than @DarthCoin) just say fuck bitcoin loans?

Yes.

0 sats \ 0 replies \ @itsrealfake 16 Jan

Yes

41 sats \ 0 replies \ @0xIlmari 17 Jan

I encourage everyone to research how lending is done under Islamic laws, which prohibit interest lending.

But the short end of it is, a lender becomes a co-investor in an enterprise (sharing both risks and profits), or is compensated value-for-value in another way (lease, services exchange etc.)

And fuck consumer loans. If you can't afford it, you can't afford it.

41 sats \ 0 replies \ @JesseJames 17 Jan

F bitcoin loans :-)

41 sats \ 0 replies \ @OT 16 Jan

I used to use Ledn and Hodlhodl in 2020-21. Its still risky as Ledn has custody of your BTC during the period of the loan and hodlhodl could potentially be both the lender and the platform.

The rates are high for borrowing as there's still not much competition. I don't think I'll use them unless I have to. A lot of bitcoiners have the idea that they're going to just lend out their bitcoin and live off the yield (ie never sell your Bitcoin). If too many people do this it creates too much risk for the entire network. Its not worth it. Spend sats as needed. Earn sats, save in sats. This is the way.

41 sats \ 0 replies \ @kepford 16 Jan

I'm in favor of human freedom and that includes freedom to do dumb stuff. For me, nah I don't see myself putting my bitcoin at risk. I for sure would never give a lender custody of it, that is beyond stupid to me.

All that said, I think we are in the very very early stages of bitcoin and all of the ways it can be used. I have no doubt it will be a debt instrument and it might be common. I'm not worried about it in the slightest.

The rug pulling will continue until morale increases.

41 sats \ 0 replies \ @SimpleStacker 16 Jan

I don't have much experience in bitcoin/crypto credit markets. Borrowing against my bitcoin seems like a bad idea to me. Lending people my bitcoin seems like an equally bad idea.

I'm very curious as to who the borrowers are for bitcoin backed loans, and what they use the funds for. Are they just using it speculate even more in crypto markets? Because most large purchases that you'd need to borrow for (house, car, even businesses, etc) have tradfi loans available, usually at a better rates than crypto backed loans.

Are these people without access to traditional capital markets? Are they people who simply don't know how to borrow from traditional capital markets? (some young folks I've met fall into this category... they are actually more familiar with crypto markets than tradfi).

Either way, I'm trying to figure out who the customers in these markets are.

62 sats \ 0 replies \ @Bitcoiner1 16 Jan

A loan from your bank will be WAY CHEAPER!

Only will use a BTC backed loan if I'm out of options. Higher rates and high risk. I love so much my SATs, I don't want anybody else taking care of them.

41 sats \ 0 replies \ @ama 16 Jan

The future of lending with BTC as colateral will be something more like the zero (0% interest for as long as you want) line of credit by Sovryn, probably on BOB or some other layer 2 (at the moment it runs on Rootstock and BOB).

https://sovryn.app/borrow/line-of-credit

41 sats \ 2 replies \ @grayruby 16 Jan

I have used Ledn for a B2X loan. You post bitcoin as collateral and they lend you the money to double it. I did it during the bear market but closed it out early when they merged with a crypto fund and made some changes to the accessibility for Canadian users. I was a big fan of theirs and they have managed to stick around since then but it troubles me that they are connected to this crypto fund. Seems like blockfi to me where they will custody the bitcoin for the loan but then lend it out to their fund to trade with.

40 sats \ 1 reply \ @siggy47 OP 16 Jan

I was surprised too when I looked at the Ledn web site. I thought they were bitcoin only.

41 sats \ 0 replies \ @grayruby 16 Jan

They started that way.

I am a fan of their story and they are based in Toronto. At least they were when they launched, not sure now. I want to root for them but I also don’t want to lose my bitcoin because their crypto fund blows up due to the next trendy shitcoin. Not saying it will but there is a risk.

Eventually all the big banks will custody Bitcoin and lend against it.

41 sats \ 0 replies \ @criptopanas 16 Jan

I've been in both side of the loans.

My experience with Ledn.io: It was very straight forward, I deposited my BTC, in less than 5 minutes I got my loan with a 50% LTV (for example, $1000 worth of BTC I got $500), the interest rate was about 14,2% year. I could pay the loan before the year with no fees or penalties. I bought some SATS with the money I got from the loan. During my loan the price went down and I needed to send more SATs to add more colateral. It was a risky move, I'had some sleepless nights. It's not for everyone!

My experience lending funds on Lend by HodlHodl: I have a small amounts of my saving on stablecoins , because we liked or not is a strong currency compare to the EUR. I use this USD saving as liquidity and when I know that I'll not use this funds for some time, I lend part of it on HodlHodl. I've done some loans backed by BTC for a good interest rate (sorry for my FIAT mentality) between 14% to 60% year. I always got my capital + interest back, no problem at all.

OFF COURSE, buying and holding BTC would have been more interesting, but this money is the one I use for the short term.

If the other person won't pay me back, I would get some BTC for the value of my capital + interest.

I did some research about Firefish, but it was very complicated the custody part...

41 sats \ 0 replies \ @snakedye 16 Jan

Lending in an of itself isn't an issue. It's the interest. At scale, it's not possible to lend the way lending is done nowadays without external collateral or creating more debt than there is Bitcoin in existence.

People need to rethink the way they loan.

62 sats \ 1 reply \ @SwapMarket 16 Jan

Bitcoin was invented to stop trusting your money to any third parties. There are "risk free interest rates" on fiat currencies because they are all ponzi. They inflate, so to protect your money's purchasing power you must save/invest to earn interest.

Bitcoin supply does not inflate. Risk free interest rate on it in ZERO. You just hold it in self custody.

1 sat \ 0 replies \ @JesseJames 17 Jan

This guy gets it ^^^^^ :-)

41 sats \ 4 replies \ @sasasuina 16 Jan

Is it possible for Bitcoin to develop an L2 that supports Turing-complete smart contracts, enabling the creation of various DeFi applications on top of it, such as DEXs and loan platforms?

I'm quite curious about what Bitcoin Maxis think of this kind of L2. Do they support it or oppose it?

41 sats \ 1 reply \ @aliceandthewonderland 16 Jan

Turing-complete smart contracts, enabling the creation of various DeFi applications on top of it

imo, very negative. extremely negative. It only ends up creating massive attack surfaces, unnecessary complexity, and systemic risks that undermine the core value proposition of sound money. simple, reliable Bitcoin script is all you need for secure value transfer - anything more complex just introduces vulnerabilities.

0 sats \ 0 replies \ @sasasuina 16 Jan

Got your point. As a coder I always want more powerful language. But Bitcoin does has its philosophy.

0 sats \ 1 reply \ @SwapMarket 16 Jan

Google Liquid's Simplicity smart contracts that should avoid all the problems of Ethereum's Solidity.

0 sats \ 0 replies \ @sasasuina 16 Jan

Thanks! I know nothing about Liquid Network. Will take a look!

162 sats \ 1 reply \ @Natalia 16 Jan

Personally, I would NOT lend my Bitcoin; what would I get in return, more fiat or more Bitcoin?

If it's more fiat, risking Bitcoin for fiat sounds stupid...
If it's more Bitcoin, then might need to see how they can make it work.

But I would prefer peace of sleep, using my Bitcoin to build the things I want to see rather than expect others to do the work.

0 sats \ 0 replies \ @Msd0457890 16 Jan

I totally agree with you, it would be crazy to change Bitcoin to Fiat.

41 sats \ 1 reply \ @037447d9ca 16 Jan

I'd rather use Aave than a trusted third party. Sovryn is another option.

0 sats \ 0 replies \ @JesseJames 17 Jan

There is no trusted third party. It's an oxymoron. :-)

41 sats \ 4 replies \ @Aardvark 16 Jan

Let someone hold my bitcoin so I can have more fiat?

Nope.

I'm trying to get rid of my fiat for bitcoin.

21 sats \ 3 replies \ @siggy47 OP 16 Jan

I understand that notion, but I think the whole lending idea is inspired by the fact that once you have owned bitcoin for a while, you become wealthy. This is a way to enjoy the fruits of your wealth without selling your bitcoin. Also, no capital gains tax, which is important to people who care about that stuff.

141 sats \ 2 replies \ @Aardvark 16 Jan

I'm with @DarthCoin on this one. When thst time comes, I'll spend my bitcoin, not trade it for fiat.

0 sats \ 0 replies \ @Natalia 16 Jan

spending sats directly makes you feel less guilty than selling it for fiat.

0 sats \ 0 replies \ @siggy47 OP 16 Jan

It's a choice we all (or our heirs) will have to make eventually.

41 sats \ 0 replies \ @0xbitcoiner 16 Jan

Does anyone (other than @DarthCoin) just say fuck bitcoin loans?

me! I don't have it and I don't recommend it, but of course anyone who wants to can do so.

41 sats \ 2 replies \ @Satosora 16 Jan

From what l know, it never seems to work because people borrow money at the top, but the loan comes due when it dips. So they own the difference...which they usually dont have. Where did they say they custody it?

20 sats \ 1 reply \ @siggy47 OP 16 Jan

I don't really remember. Maybe it says on the site.

41 sats \ 0 replies \ @Satosora 16 Jan

I just dont think it is worth it. Especially because you are borrowing in fiat, which is a losing proposition.

0 sats \ 0 replies \ @watchmancbiz 17 Jan

I wonder how they make their $. it sounds like more of a win for the borrower. by the time you pay it back, I guess it all depends on exactly the interest, etc. but BTC is gonna be huge on the rise more and more going into the future. a borrower who is intelligent and wise with this loan could make a profit out of it, I would think.

0 sats \ 0 replies \ @Msd0457890 16 Jan

It is an excellent post and it is actually quite a controversial topic, many Bitcoiners are for and against it like our friend @DarthCoin.