The $64,000 question in crypto lending is “Whose equity takes losses and how much of it is there to support the loan book?” and the community seems to think the answer is “What is equity and why would you need it for an overcollateralized loan?”
Forgive me for making this seem really simple but:
Borrower: I want to borrow $60k.
Lender: I will need to custody $90k BTC against that.
Borrower: No worries.
Lender: Purpose?
Borrower: Buying Bitcoin naturally.
Lender: Naturally. I will lend out the collateral.
Borrower: Cool.
Borrower: I want to borrow $60k.
Lender: I will need to custody $90k BTC against that.
Borrower: No worries.
Lender: Purpose?
Borrower: Buying Bitcoin naturally.
Lender: Naturally. I will lend out the collateral.
Borrower: Cool.
There are a lot of things you could say about that structure but “It seems to be totally hedged against all plausible moves in the price of BTC” is not one of those things.
From this comes observation comes a related one: many products which aren’t sold as equity seem to have very equity-like exposures under stress.
Tether, for example, is pretty clearly an equity claim if you squint at it.
Is $EXCHANGE Lend? And if so, where in stack does it sit?
Tether, for example, is pretty clearly an equity claim if you squint at it.
Is $EXCHANGE Lend? And if so, where in stack does it sit?
Like if you are preferred equity in Chase you know exactly how quickly you take impairment relative to common equity, bond holders, and depositors.
If you are I Can’t Believe It’s Not Equity in an exchange, where in the stack is that exactly?
If you are I Can’t Believe It’s Not Equity in an exchange, where in the stack is that exactly?
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