Deribit is a new blockchain platform that intends to make crypto-backed USD loans something real. According to the company, investing in successful long term crypto deals is not easy and, mas many holders intend to spend some part of their holdings and wealth at the same time that they remain invested, that can be a challenge and that is why this company exists.
What Is Deribit?
Deribit is online since June 2016, before most companies were even aware of the potential of the blockchain technology. The original founder of the company is John Jansen, and he teamed up with Marius Jansen, Sebastian Smyczýnski and Andrew Yanovsky to move the company forward.
The company started as a Bitcoin futures and options trading platform and has been expanding ever since. One of the branches that the company decided to follow was the lending market.
However, the loaning market is still difficult to use because the price of digital tokens is often too volatile. If you ask for a loan and get a certain collateral, the price of the tokens might change so much in such a short time that you will either have to force the borrower to increase the collateral or reduce the loan for it to be profitable.
While, especially last year, many companies were in the Bitcoin lending business, it is important to notice that less than $100 million USD in loans were made, which is somewhat of a low mark for such a global market that could have been so much bigger than it actually is.
How Does Deribit Work?
Deribit believes that the reason why the market is not bigger is the possibility of margin calls and how they are bad for both the sides of the equation. This way, it is impossible to make crypto lending really popular.
However, Deribit also believes that derivatives and put options can be a solution for this huge problem of the market. Put options, in case you are not familiar with them, are basically insurance options that you can use to ensure that the collateral never actually goes below the value of the loan and both the loan and lender are able to be satisfied.
By using derivatives, the market can give some annual interest to the loan by taking a premium. This way, the interest margin of the lender is higher and carries no risk as there is an additional percentage that is added in a way that it keeps the investment more stable.
This makes the borrower no longer facing margin call risks and gives it guarantees even if the collateral goes to zero, as you will have to post extra cash to repay the loan. The borrower pays the premium so the lender also does not get on the bad side of the equation.
The Deribit Verdict
This company looks to be a considerable option for who is interested in a lending company that you can really trust, as many of the ones that appeared last year simply did not seem to be too good. While not 100% secure, like all investments with crypto, this one is at least better than the ones that promise you everything without ever explaining how they will do what they promised.