Deribit, a new crypto futures startup, is offering investors fiat currency loans, provided they use their bitcoin (BTC-USD) as collateral. The company noted that it is a tedious process to invest in long time crypto deals.

Therefore, the company aims to provide a solution for the investors who want to spend a chunk of their holding while they still retain the investment. An investor, for instance, may provide a deposit of $125,000 in digital currency as collateral and receive $50,000 in cash. The borrower may, however, be required to top up the digital currency in case of a marginal price collapse.

Getting into the lending market

Deribit is a blockchain based platform that was launched in June 2016. The company has expanded from only focusing on Bitcoin futures and options trading network. One of its growth strategies has been venturing into the lending market.

Several other companies are said to have such a solution, unfortunately, all those companies combined have only managed to issue less than $100 million in loans. Deribit thinks that the reason for the minimal loans is a result of the potential of a margin call. This is where a loan is at risk of not being able to be covered by a collateral as a result of a massive price drop. Thus, such a risk is enough reason to keep off lenders as well as borrowers.

Derivatives

The Deribit network also offers other beneficial features which differ from other platforms. It offers what is known as derivatives for hedging purposes. This ensures that the digital currency collateral is safeguarded against huge price drops.

Deribit is optimistic that derivatives and put options can provide a solution against the risk of price volatility. A put option is an insurance option that makes sure a given collateral does not go below the loan value. It comes in handy in protecting the loan and the lender as well.

Through derivatives, the market can take a premium by giving the loan some annual interest. This ensures the lender’s interest margin is higher helping to mitigate risk and keeping the investment more stable. The borrower’s risk of facing a margin call is eliminated and the loan is guaranteed even if the collateral decreases to zero.

The interest rate is expected to range between 15% to 17% per annum. Currently, Deribit only accepts Bitcoin collateral, however, the platform plans on adding more tokens in the future.