Is the principle of investing in loans secured by cryptocurrencies different from others?
As for the investment principle itself, it is the same as with other investments on Bondster. You simply choose one of the loans secured by cryptocurrency, choose the amount you wish to invest and look forward to the appreciation of your investment.
Do I need to understand the cryptocurrency market?
You do not need any deeper knowledge. The principle of investing is no different from other types of investments on Bondster.cz
What are the advantages of investing in loans secured by cryptocurrencies?
They offer a high level of security and above-standard interest. From the security point of view, loans are secured by the buyback guarantee and in case of early termination of the investment, investors get back 100% of the invested funds including the interest earned for the whole period. Taking into account that these loans are well-secured, the interest rates offered are relatively high.
How does it all work actually?
It all starts on a global cryptocurrency exchange that works on the principle of P2P (peer-to-peer). An individual or business takes up a loan from the lender, company ACEMA. Instead of personal property or real estate, the borrower pledges his cryptocurrencies. The lender then keeps the bitcoins as collateral for the entire period of the loan repayment. Such secured loans are then offered by ACEMA for investment on Bondster.
Are there additional ways of securing loans that are secured by cryptocurrencies?
Yes, there are. Investments in loans secured by cryptocurrencies are very well secured in general. Firstly, with the possibility of buyback (repurchase guaranteed by the provider, i.e. ACEMA). Secondly, investors are also protected in case the investment is terminated early, and they get back 100% of the invested funds including the interest earned for the whole period.
What is LTV?
LTV (Loan-to-Value) indicates the ratio between the amount of the loan and the amount at which the pledged cryptocurrencies were valued at the time of the loan agreement. The lower the LTV, the more secured the investment is.
Is a loan with a higher LTV (e.g. 70%) less secured?
No, it is not. With higher LTV (combined with market volatility), it is more likely that a forced sale can be initiated. The investment may thus be terminated prematurely but the level of security is not affected, and the investor always receives the invested money back including the interest for the period.
What if the value of the cryptocurrency that is used for securing the loan decreases?
The value of cryptocurrencies fluctuates and if it was to fall significantly, the borrower has the possibility to increase the value of the collateral and thus compensate for the decline. Should the value of cryptocurrency fall to the extent that the value of collateral reaches 90%, the exchange notifies the borrower of the commencement of a forced sale process and the assignment of the collateral to the lender, ACEMA. It then converts the cryptocurrency to euros and the investment ends prematurely with the investors receiving back 100% of their invested funds including interest for the whole period of the investment.