Crypto-backed loans are an option for people who want to use the value of their cryptocurrency holdings without selling. With a loan collaterized with cryptocurrency, it is possible to access the value of your holdings and still hold them in your portfolio. Crypto loans are? very flexible. There are options for individuals looking for microloans, as well as companies looking for significant financing. Crypto-backed loans are also used by traders to fund cryptocurrency purchases through trading.
The size of a crypto-backed loan depends on the value of the cryptocurrencies put up as collateral. The exact amount of collateral is determined by something called the loan-to-value (LTV) ratio. This can be anywhere from 25%-90% of the value of the collateral.
As with any loan, the borrower of a crypto-backed loan pays interest to keep the collateral intact until the loan matures. However, repayment options can be extremely flexible because blockchain technology is able to ensure the collateral is liquidated in case of default.
However, Crypto-backed loans are risky because the value of cryptocurrencies can be extremely volatile. If the price of a cryptocurrency decreases over the period of a loan, it shouldn't be used as collateral. If the value falls, you will either have to repay a part of the loan or increase the collateral.
Q: What is the main risk of a crypto-backed loan?
A: If the price of a cryptocurrency used as collateral falls you will either have to repay a part of the loan or increase the size of the collateral.
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Original link：https://loanscanada.ca/loans/loan-to-value-ratio
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