And the reason I share this here is because it’s not just a leverage like the one usually used in margin trading. It can also be a leverage for a hodler -like me. Here is the story;
But before that, I’d like to thank you for sparing your time reading this article. If this is your first time reading my post, I recommend you to take a look about who I am in the link below;
First time I heard about Bitcoin was in 2012 from my high school schoolmate.
About Bitcoin, I was as skeptic as other people knowing how easy it is for NSA to decode any cryptographic security. My…
I think in the future some block-chain project might not survive but I also believe that a lot of good projects should be sustainable. Especially those with a strong user base and solid team. I use to do a thorough analysis and evaluation of the project before deciding to put it in my portfolio. Hence, no matter what happen with the price on the market, I will not consider to sell my assets unless I signal the team behind it begin to deliver less than expected. However, since at the moment I don’t have a full time job, I would like to start generating cash flow from my crypto assets. The problem arise since I am not considering to loose my assets in hand.
As a result, I find ETHLend very useful in two ways;
First, since I’m also holding Ethereum (ETH) in my portfolio and don’t want to sell it, I can use ETHLend decentralized application to lend my ETH to other people that requested a loan in the dapps. From this lending, -by doing nothing- I will receive interest that usually range from 6 to 12 percent a month. In that case after the loan period finished, I can consider my interest received as a positive cash flow and withdraw it to fiat for my daily needs. In the case where the borrower failed to pay the loan, I can have their collateral that has a higher value than my ETH. Normally people can request a loan amounting maximum 67% of their current collateral value. However, due to the volatility and liquidity risk, I would prefer to fund a loan backed with token that I want to hold in the long term and loan amount less than 50% of their current collateral value.
The other way I can benefit from ETHLend is by requesting a loan. I can use my LEND or other token I am holding as a collateral to be able to place a loan to get ETH. The interesting point here is we can place a loan in ETH or USD pegged ETH. In ETH loan, if we borrow 1 ETH, at the maturity date we’ll need to pay back 1 ETH plus interest, let say for example 1.1 ETH in total (10% interest), no matter how much the price of ETH in USD has changed. In USD pegged ETH loan, we can place a 1,000 USD loan so that we can receive ETH with current rate as much as 1,000 USD. At the maturity date we will pay in ETH as much as 1,000 USD plus interest no matter the ETH to USD rate at that time.
This open the room for me to speculate on ETH price at the loan maturity date. If I bet ETH price will be higher on the maturity date, I will place my loan as USD pegged ETH. In that case, I will pay the loan based on the USD value I have received no matter the ETH price fluctuation. On the other hand, if I bet ETH price will be lower on the maturity date, I will place the loan in ETH value. For example if I request ETH loan with todays rate 1 ETH = 865 USD; Since I convert the loan in fiat for my daily needs I get 865 USD. If my bet is right, at the maturity date the rate -let say- for 1 ETH = 795 USD. I will need to spend less than 865 USD to repay my loan.
Besides opening the room for ETH price speculation, It will also open the room to speculate in another tokens or coins. Considering the market capitalization of ETH is one of the largest in the ecosystem, the price movement can be limited. A smaller cap coin may have a higher price jump or better fluctuation. I can convert my ETH received into another smaller cap token which has higher potential price jump than ETH.
As an example, here is a loan I placed in USD when the rate per ETH was around 810 USD — current rate is 861.5 USD per ETH:
You can also find it in the link here, but make sure you have Metamask opened in your browser.
For those of you who has familiar with derivative trading, you can apply the speculation strategies in here as well. Strategies such as straddle, strangle, married put, covered call, etc. can help borrower to better manage the speculation. It will makes borrower able to suit the action taken with their own risk tolerance based on their profile. More over in this platform we can chose our own interest rate, loan term, even settlement frequency that will makes managing risk and formulating strategy easier.
In addition for my points explained above, ETHLend has a program to reward both active lenders and borrowers with tokens based on their activities. I think this is a better and more focused incentive since it will reward those who actually grow the platform and get benefit from it. This reward concept is actually a revision from LEND token buyback program. So instead of using the commissions paid by lenders and borrowers to buyback LEND token in the market and burn them that will only provide short term benefit, ETHLend decided to reward them to active lenders and borrowers.
In conclusion, from finance and economic perspective, this peer to peer lending concept is interesting and I think can benefit both lender and borrower at the same time. While in traditional loan, borrowers will usually be the loser since all rules are set by the lender to make them get the gain as much as possible.
I hope this article can be useful for you, don’t be hesitate to write any comment for opinion or suggestion. And also feel welcome to share it to your social media, thank you :)