Chain Backed Loans – How To Borrow Money Using Chainlink Tokens
The cryptocurrency industry is changing rapidly, providing new opportunities for individuals and companies to profit from digital coins. If you need a quick cash, but don’t want to sell your Chainlink tokens, there is a special loan type for you. It is available on a growing number of lending platforms and allows you to borrow quickly.
How it works
Discover a new type of secure crypto loans. Borrowers pledge their Chainlink (LINK) tokens as collateral to borrow assets from a wide range – options range from fiat currency to stablecoins. No credit check is required. Speed is another advantage of a Loan of chain links because processing times are short – just a few hours.
The maximum amount you can borrow depends on the number of tokens you have and the LTV ratio, or the Loan-to-Value (LTV) requirement. It indicates the part of the borrowed capital which determines the size of the collateral. For example, 50% means that you have to pledge half of the amount you borrow in the form of tokens. Here are the key terms to know.
1. The initial loan-to-value ratio (LTV)
Here, the “loan” value includes the amount you borrow plus the interest accrued over the life of the loan. The “value” is your chain link tokens pledged as collateral. As cryptocurrencies are very volatile, the LTV value is also changeable. It fluctuates with the price of the tokens.
2. LTV margin call
The platforms continuously monitor the LTV on all loans to ensure that the market value of the collateral is sufficient to cover the debts. When a critical level is reached (eg 70%), the borrower must provide more collateral. There are two options (margin call and liquidation), both automatic.
The Margin Call LTV is the LTV level that triggers warnings about a possible liquidation. It is fixed between the Initial LTV and the Liquidation LTV. Unless the borrower no longer provides any tokens as collateral or partially repays, their tokens will be sold.
3. LTV clearance
This is the level at which the collateral will be sold by the platform to cover the partial repayments of the loan. Portions of the pledge tokens are sold until the LTV returns to an acceptable level.
4. Interest payments
The cost of borrowing depends on the platform, the lender, the amount and the length of the loan. The longer the repayment, the higher the cost, just like with a bank loan.
Chainlink token-backed loans allow users to borrow fiat money and cryptocurrencies by pledging their LINK assets as collateral. Interest rate and other terms vary. The initial LTV and the Margin Call LTV define the acceptable size of the collateral over the life of the loan.
(Devdiscourse journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse assumes no responsibility in this regard.)