One of the questions that people ask the Lendo team is this: how will you manage a loan given against cryptocurrency as collateral when being in the market is like playing a game of Snakes and Ladders (Chutes and Ladders in the U.S.). One minute you’re going up the ladder with your crypto and next thing you are sliding down a snake/chute.
The market volatility is something that Lendo’s management has of course considered with regard to the Loan To Value (LTV). Lendo’s CEO, David Honeyman, took the opportunity to explain Lendo’s approach to the press after he had given a talk at the recent Gibraltar International Fintech Forum 2018.
Commenting on the consumer concerns about a Bitcoin crash and its rollercoaster ride up to nearly $20,000 at the end of 2017 compared with where it is today, he said, referring to the $20,000 valuation:
“Definitely we wouldn’t want to lend 60 percent LTV (loan to value) on that value, so we plan to take two values; today’s value and the last three months. The quarter’s moving average in short, so there are ways to even-out the peaks and troughs.”
This method is fair and protects both borrower and lender in a fluctuating market.
Lendo’s Collateral Calculator
This is how the calculator will work to determine:
· The amount of collateral for a given loan amount
· The loan amount offered for a given collateral amount
The collateral calculator calculates the amount of collateral required for a loan, or to back a credit card. The calculator also computes the amount of loan that will be offered for a given amount of collateral. This little service communicates with the quotation service to determine the current and historical values.
The calculator will take the lowest of the average quotation over the last 3 months and the current price and uses that as the base value.
Each approved lender in the Lendo Platform configures values for their loan calculation. The most important is the Loan to Value (LTV). This figure is typically around 60% meaning that the lender will offer the borrower a loan of 60% of the base value calculated above.
The collateral calculator will communicate with the lender service to determine the LTV for a particular lender and combine it with the base value to return the amount of collateral required.
We hope this answers the question of how Lendo will deal with a volatile crypto market.