ABLE’s ICO-Backed Crypto Loan
ABLE Project #7
ABLE project will provide various cryptocurrency loan products (Crypto loan) for users. In the initial stage of its business, it will mainly provide services for crypto loans backed by cryptocurrency since use of cryptocurrency is not expanding enough to gather credit data in the crypto space. The role of ABLE is not to function as an intermediary but to provide a decentralized service platform to users. Investors and borrowers will make various crypto loan contracts at their own discretion.
ICO-backed crypto loans are a product that lends highly liquid cryptocurrencies, such as Ethereum, to borrowers. Strictly speaking, they are a sort of crypto loans backed by unlisted coins.
In the current crypto space, new investments are made mainly through ICOs. For their funding, new cryptocurrency companies propose business plans and distribute their coins to investors. The investors can earn returns only when the new coins they are holding are listed on exchanges and increase in value because they have no rights to receive back the principal of their investments.
ABLE’s ICO-backed crypto loans are a product to solve these problems. Using the product, investors can buy many new coins while taking lower investment risks. Based on smart contracts, they will receive investment principal and interests from borrowers, which are companies issuing new coins. Even if the borrowers cannot pay back their crypto loans, the investors can own the new coins and earn returns similar to those from investments in ICOs.
For example, let’s assume that Virtual.io is issuing its VTC coins through ICOs. Virtual.io wants to borrow 1,000 Ethereum (ETH) from investors after putting up its VTC coins as collateral. For risk management, Virtual.io and the investors make agreements that their loan is backed by VTC coins the market value of which is equal to 1,500 ETH, 150% of the loan, and that the maturity of the loan is one year, and the loan rate is 10%. For investor protection, Virtual.io pays 100 ETH upfront as interest and pays back 1,000 ETH to the investors one year later. If Virtual.io cannot pay back the loan at the expiry, the investors will own the VTC coins put up as collateral.
In case that investment demands for ICOs diminish, companies issuing new coins can diversify their funding through ABLE’s ICO-backed crypto loans. They can receive funding from investors with lower risk appetite than ICO investors and borrow cryptocurrency at a variety of maturities. They can also increase ROI of their coin investors by raising funds without issuing new coins.
When cryptocurrency companies need to fund new businesses after completing ICOs and listing their coins on exchanges, they can get ABLE’s crypto loans backed by listed coins. In this case, investors of the loans can lower investment risks than when they invest in ICOs or ICO-backed crypto loans because they investments are collateralized by coins which are already listed on exchanges.
ABLE’s crypto loans will be a useful service for individuals as well. If they have coins not listed on exchanges or earn those from airdrops or bounty programs, they can use their coins as collateral and borrow highly liquid cryptocurrency such as Ethereum.