Crypto-Backed Loans Can Boost Honest Collateralized Lending to Help Avoid a Future Crisis

How Crypto-Collateralized Loans Restore Honesty in Lending, Avoiding Financial Crisis

With the emergence of cryptocurrencies, it’s evident that digital assets solve liquidity problems. But as the industry expands and evolves, could it be the solution for avoiding another financial crisis?

The catastrophic failure of the banking system manipulating encouraging governmental regulations was a real nightmare for a huge number of consumers across the world in 2018. The tinder that started the fire in the US –collateralized debt obligations (CDOs) married to poor-quality debts like mortgages – has not yet seen a properly safe replacement.

In an interview with The Guardian, Britain’s former Prime Minister, Gordon Brown, said that,

“We are in danger of sleepwalking into a future crisis….There is going to be a severe awakening to the escalation of risks, but we are in a leaderless world.”

Restoring Honesty Lending and Non-Fractional Banking

With major failings evident in 2018, there’s hardly a sense of urgency in changing the banking system in a bid to prevent a repeat crisis.

The alternative whereby an institution holds a tiny amount of its deposit liabilities is yet to work effectively. However, in the cryptocurrency world, everyone can see a taste for non-fractional developing.

The talk of Wall Street going Bitcoin is also becoming increasingly possible. And when it comes to collateralized lending for both corporate and personal levels, the industry is already demonstrating the application of cryptocurrencies.

For instance, collateralized lending with bitcoin, the most established cryptocurrency in the world, seems to be a perfect application. The coin has easy liquidity, global price consensus, 24/7 markets, politically-neutral, borderless, immutable transactions, and easy trading in and out of the asset.

InLock Eying Collateralized Fiat Loans

One such company eying collateralized fiat loans is InLock, a fledging startup for crypto-backed loans. The CEO of the company Csaba Csabai explained:

“The concept of having a collateral class with money-like liquidity is relatively new. The growth will be enormous once major financial institutions realize the opportunity this new form of lending has to offer.”

While Bitcoin remains a volatile coin, capable of protracted downturns, collateralized loans are designed to offer security against any bear markets. If the crypto collateral of the client is liquidated due to falling prices, fiat currency can still be leveraged.

“The borrower sees it this way: I need some money to spend, but I believe my crypto will go up in price, so I really don’t want to sell now,” noted the Chief Marketing Officer of InLock, Péter Gergő.

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