Fabian Dori, chief investment officer at Sygnum, a digital asset bank, highlights the preference of banks for onchain crypto collateral over exchange-traded funds (ETFs) when issuing crypto-backed loans.
Onchain assets provide greater liquidity, enabling lenders to execute margin calls at any time, 24/7. This flexibility allows them to offer borrowers higher loan-to-value (LTV) ratios since they can liquidate collateral instantly.
The loan-to-value ratio compares the loan amount to the collateral’s value, typically using cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), or other acceptable tokens. A higher LTV means you can borrow more against your crypto assets.
Dori explains, direct token collateral is preferable because it supports continuous market access. For example, margin calls on ETFs can be difficult during market closures, unlike onchain tokens which can be managed anytime.
Advantages of Onchain Collateral:
- Enhanced liquidity with round-the-clock market access
- Ability to perform immediate margin calls
- Higher loan-to-value ratios to maximize borrowing capacity
- Supports a smoother, more flexible lending process
Despite crypto-backed loans still being an emerging product, Dori is optimistic about the growth of this sector as cryptocurrency adoption increases globally.
Financial institutions are progressively embracing crypto-secured loans, with crypto lenders entering US stock markets and traditional finance firms exploring crypto as acceptable collateral.
Notably, Figure Technology debuted on the Nasdaq, marking a significant milestone for crypto-backed lending. Shares rose over 24% on opening day, highlighting rising investor confidence.
JP Morgan is also reportedly planning to offer crypto-backed loans, with potential launch slated for 2026, signaling mainstream acceptance.
Related Read: South Korea limits crypto lending rates and bans leveraged loans to manage risk.
