Opportunities for New Generations with Home Loans Using Crypto as Collateral

Crypto-backed home loans began in 2012 with BTCJam as a pioneer. By 2016, over 16,000 loans had been disbursed in 120 countries, with an average loan value of $400-600, marking the beginning of a revolution in the housing loan industry.

How it works

1. Borrower transfers crypto (e.g., Bitcoin or Ethereum) to the lender as collateral.
2. Lender locks the crypto in a custody system.
3. Borrower receives a loan in fiat currency to buy a home.
4. As long as payments are made on time, the crypto remains the borrower's.
5. If the crypto price drops significantly, additional collateral may be required.

 

Criteria for consideration

When considering a loan, lenders typically only accept major cryptocurrencies such as Bitcoin and Ethereum, requiring the collateral value to be approximately 150% of the loan amount. Borrowers must demonstrate the origin of their crypto in accordance with AML regulations and pass financial and credit checks. Additionally, the real estate to be purchased must be appraised.

Advantages of the loan

• No need to sell crypto; still benefit from potential price increases.
• Tax savings because no Capital Gains Tax is incurred.
• Faster approval as it primarily relies on collateral value.
• Uses Smart Contracts to reduce paperwork.
• Transparency through Blockchain technology.

 

Risks to be aware of

The most significant risk of this type of loan is the volatility of crypto prices, which can lead to margin calls. Furthermore, laws and regulations in many countries are still unclear. Borrowers must carefully review the loan terms, especially regarding interest rates, payment schedules, margin call conditions, and collateral seizure procedures.

 

Key service providers in the market

Currently, there are several key service providers in the market.

Nexo

• Supports 40+ cryptocurrencies.
• Fast approval.
• Flexible repayment plans.

 

Ledn

• Focuses primarily on Bitcoin.
• Suitable for crypto investors.
• Helps diversify risk into real estate.

 

Salt Lending

• Offers various loan types.
• Supports multiple cryptocurrencies.
• Emphasizes maintaining clients' crypto holdings.

 

Things to consider before choosing a service provider

When selecting a service provider, borrowers should consider the platform's reputation and reliability, security system, interest rates and terms, supported cryptocurrencies, legal compliance, and customer service quality.

Conclusion

Crypto-backed loans are gaining increasing popularity because they allow crypto investors to leverage their digital assets without having to sell them. Despite numerous advantages, interested individuals should thoroughly research the details and understand the risks before making a decision, as the volatility of the crypto market can affect the loan.

Author's views and comments

Opportunities for the Thai market

The introduction of crypto-backed loans in Thailand could be a significant turning point because Thailand has a high rate of crypto adoption, especially among younger generations who are looking for housing but may not have sufficient down payments or stable incomes. Using crypto as collateral would make housing more accessible for this group.

Challenges to be aware of

However, there are several challenges to implementing this in Thailand:

1. Regulations from the Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC) are not yet conducive to this type of lending.
2. Thai commercial banks lack expertise in assessing crypto risks.
3. The Thai crypto market remains highly volatile, with a history of platform failures.

 

Author's perspective

If this type of loan comes to Thailand:

1. It should start by using only Bitcoin or Ethereum as collateral due to their high liquidity and reliability.
2. There should be a custody system that meets standards and is certified by regulatory bodies.
3. The loan-to-value (LTV) ratio should start at approximately 50% to account for volatility.
4. There should be an advance notification system before a margin call is reached, allowing borrowers time to manage.

 

The future of this type of loan

The author believes that within the next 3-5 years, we will certainly see this type of loan in Thailand, but it may start with non-bank financial institutions before gradually evolving into commercial bank products in the future. This will open opportunities for Thai crypto investors to leverage their digital assets more effectively.

Thailand's vibrant crypto market and strong real estate market make the development of this type of loan highly probable. However, it requires collaboration from all sectors, including regulatory agencies, financial institutions, and service providers in the crypto industry, to create a safe and sustainable ecosystem for Thai consumers.

Information source:

https://cointelegraph.com/news/how-to-buy-a-home-with-a-crypto-backed-loan