A crypto start-up has launched a digital asset-based mortgage lending service. How does it work?
Digital assets are increasingly in demand in everyday life. The day before, US startup Milo Credit launched Bitcoin-backed mortgage services, even without having to sell the cryptocurrency. And since in the US as well as in some other countries around the world the sale of crypto is a reason to pay tax, Milo Credit’s solution looks particularly attractive. We tell you more about the scheme.
Note that a scheme to use cryptocurrencies without directly selling them is nothing new. For example, in mid-April 2022, cryptocurrency company Nexo launched a new product in the form of a card backed by Mastercard. Its special feature is to create a kind of credit line for the user, backed by cryptocurrencies.
In other words, the investor will spend money from their credit line, while the amount of their digital assets will remain the same. This means that long-term holders of coins get a more than attractive option to use them without the risk of losing their accumulated assets. Read more about this innovation in a separate article.
How cryptocurrencies can be used
According to CryptoSlate’s sources, the mortgage rate is 3.95 percent per annum, and the cryptocurrency is stored in Gemini and Coinbase custodial services. The crypto-mortgage is offered for up to $5 million, and the loan must be 100 per cent secured. Accordingly, the customer is given a loan equal to the amount of their crypto.
Custodial platforms are referred to as centralised platforms that are responsible for holding the assets of their own customers. In this case, the owners of the coins or other assets essentially entrust them to the platform and technically lose control over them. The distinguishing feature of exchange-type custodial services is the need to request permission to conduct transactions. For example, a user may have to wait to withdraw their crypto from the trading platform.
Milo Credit promises that the process of processing their services is quicker than a traditional mortgage application. Mortgage payments can also be paid off with stabelcoins. Customers are not required to have a FICO credit score to qualify for a mortgage, with the fact that cryptocurrency is considered sufficient to ensure creditworthiness.
Milo Credit
Does this type of service have its own risks? Yes, there is a risk of liquidation, i.e. forced closing of the position. If the value of the crypto as collateral falls by 30 percent, Milo Credit will be forced to sell the client’s assets to cover potential losses. At the same time, if the value of the crypto rises, the client can withdraw some of the coins from the account to reduce the interest on the mortgage.
Read also: mortgage lending giant United Wholesale Mortgage wants to introduce Bitcoin support.
Banking giant Goldman Sachs has also made its first loan backed by crypto, according to Cointelegraph sources. Its representatives said that the event was a first in the bank’s history and required a very thorough preparation process with 24/7 risk monitoring.
Goldman Sachs
It is possible that this practice will become commonplace for most Goldman Sachs clients in the future. In that case, the bank could attract a huge number of new wealthy clients who have made their capital from cryptocurrency trading. This is great news for the entire cryptosphere, as we now have clear evidence that Wall Street is seriously interested in the future growth of the crypto market.
We believe that in this case the cryptocurrency industry has been given a serious case to apply. It is likely that, going forward, coins will increasingly be used for transactions without the need to sell them - that is, as collateral. And because many of the coins are showing positive momentum over a long period of time, it could be a win-win solution for all parties in the scheme.
What do you think about it? Share your opinion in our Millionaire Crypto Chat. There we will talk about other topics related to the world of blockchain and decentralisation.
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