Talk about cryptocurrency and finance or banking and it generally gets limited to Bitcoin and probably ETH. While we do need wider representation of cryptocurrencies in the market, let us just take this topic further and talk about crypto loans.
Let us presume that an investor has a small bag filled with Bitcoin, he now needs some cash to run his business. One option would be for him, to sell all or a part of his BTC – getting the amount of money that is required. The second option might be a better option for a business owner.
Not much is heard about cryptocurrency being accepted as a collateral security, for getting a bank loan. But things are changing and moving at a rapid pace. Third party services are emerging where a crypto firm (CF) is willing to accept, cryptocurrency as collateral for a loan that is given by a finance firm (FF). It is quite obvious, that there would be a business partnership between CF and FF.
Considering the major challenge posed by a business venture described in the above paragraph – we would stumble on the issue of security. Crypto hacking, scamming and theft are (unfortunately), as much a part of crypto space as crypto trade. Each time a crypto moves, the risk of theft and hacking increases exponentially. Imagine the investor moving his cryptocurrency to CF and CF in turn moving it to FF to get the loan sanctioned. So how can this business model adapt and evolve to face this challenge – continue reading.
We just saw that what seems like an innovative business model, is faced with a serious challenge. Keeping the issue of cryptocurrency security in mind, the business concept has attempted to reduce the number of moves that the crypto actually makes. So what you have in reality is the investor moving funds to CF and FF, sanctioning the loan against that cryptocurrency without, getting custody of the cryptocurrency from CF. Simply put the crypto remains with CF all through the process.
It would only be fair to give credit to one of the first businesses to push this business model. In mid-June 2020 Anchorage which is a San Francisco based cryptocurrency custody firm, teamed up with crypto friendly lender Silvergate to roll out the service. Competition is round the corner as more than one finance firm, has opened its doors to crypto accounts from investors and crypto exchanges.
Glitzkoin CEO feels that, ‘… this is an innovative business idea and can be developed further. While the finer nuances will gradually be disclosed, there are some interesting questions on my mind. What happens if the price of cryptocurrency being offered as collateral crashes – who bears the loss. And similarly, who gains if the cryptocurrency held as security shows a significant price rise, who benefits from that. These are some interesting issues that need answers. But all said and done, I like this idea’.
GLITZKOIN: Glitzkoin is developed on the Stellar blockchain. The project includes the multifaceted GTN token that currently trades actively on 3 crypto exchanges (Cointiger, Stellarport and Dobitrade). Glitzkoin makes a direct connect to the multibillion dollar diamond industry. The project is promoted by second generation diamond veteran Navneet Goenka, it aims to improve productivity and market scope for the glittering industry. A comprehensive diamond trading platform (DiaEx) is part of the project, it supports both B2B and B2C trade in diamonds. As mentioned above GTN is traded by crypto traders on three exchanges, it is also designated as the mode of payment on DiaEx.