What is a Crypto Loan? How Does it Work?

Introduction

The cryptocurrency industry is gearing up for mainstream adoption. How this new store-of-value system integrates into traditional business operations is a question that we get asked a lot at the Matias Group. The answer, surprisingly, is a lot simpler than you may think.

What is Cryptocurrency and how it works?

Firstly, let us discuss what cryptocurrency is. Like a traditional monetary system (Australian Dollar), cryptocurrency acts as a store-of-value. However, the major fundamental difference is that the production (mining) of cryptocurrencies is denoted within an algorithm stored on a blockchain. This means that unlike the Australian or US dollar, cryptocurrencies do not inflate based on a government deciding to print money. The blockchain simply acts as a validator of transactions. Think of it like a ledger keeping track of transactions. However, from a security standpoint, blockchains do not rely on one server but multiple decentralised servers across the globe to validate transactions.

Crypto Loans

Now that we understand what a cryptocurrency is and how it functions as a store-of-value, let us discuss how a crypto loan works. Like using a house or property as security in a mortgage or car in a vehicle finance contract, a crypto loan is no different. Your crypto assets simply act as security for the loan. The amount you can receive is simply based on the value of your crypto assets, loan-to-value Ratio (LVR), this ratio is dependent on the lender’s criteria. The approval period is super-fast as most lenders only require the crypto asset to offer an approval. Once your account is set up with the lender and the crypto assets have been deposited, you are wired Australian dollars directly to your specified account (we have seen clients receive funds within a matter of minutes) and you simply make the repayments that have been agreed upon.

Things to Keep in Mind

The crypto market can be volatile against its Australian or US Dollar pairing, so be mindful of market health when considering a crypto loan. At the Matias Group, we can assist in accessing the best products available that help mitigate these risks. To learn more or discuss what a crypto loan may look like for your business, speak to one of our Crypto Lending Specialists here.