Finney21 on Nostr: P01 proof of study Notes session 10.27.23 [814084] Topic: Bitcoin collateralized ...
P01 proof of study
Notes session 10.27.23 [814084]
Topic: Bitcoin collateralized loans [subtopic: rehypothecation]
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Hypothecation is a process where a lender receives an asset offered as collateral security
Rehypothecation is the process where a lender reuses collateral provided by their clients (the borrower) to earn income or secure further borrowing
When a lender rehypothecates borrower collateral, it significantly increase exposure to counterparty risk
While lenders who rehypothecate often offer lower interest rates on collateralized loans, the tradeoffs is borrower collateral being put at increased risk
Before sending bitcoin to a lender, a borrower should first make an assessment of the credit risk of the lender
With rehypothecation, the credit risk of borrowers to which the lender is lending the rehypothecated collateral to must also be assessed
We recommend clients only initiate bitcoin collateralized loans with lenders who do not rehypothecate collateral in order to eliminate the added risk created by rehypothecation
How your collateral is stored should also be considered. Multiparty collaborative custody and the ability to monitor funds on chain by holding 1 of n keys is the gold standard
This enables borrowers to cryptographically verify that their bitcoin collateral remains in a dedicated address and has not been rehypothecated
Rates on bitcoin collateralized loans must be adjusted for risk. Lenders who employ transparent custody practices and do not rehypothecate will charge a higher interest rate
With bitcoin poised to become the future reserve currency of the world, we feel it makes little sense to accept higher risk of loss for a slightly lower interest rate on loans
Unchained capital currently offers what we consider to be the gold standard product when it comes to bitcoin backed loans
Unchained does not rehypothecate client collateral and use a transparent multiparty multisig custody strategy whereby lenders hold 1 of 3 keys and verify their bitcoin on chain
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21min
Notes session 10.27.23 [814084]
Topic: Bitcoin collateralized loans [subtopic: rehypothecation]
—
Hypothecation is a process where a lender receives an asset offered as collateral security
Rehypothecation is the process where a lender reuses collateral provided by their clients (the borrower) to earn income or secure further borrowing
When a lender rehypothecates borrower collateral, it significantly increase exposure to counterparty risk
While lenders who rehypothecate often offer lower interest rates on collateralized loans, the tradeoffs is borrower collateral being put at increased risk
Before sending bitcoin to a lender, a borrower should first make an assessment of the credit risk of the lender
With rehypothecation, the credit risk of borrowers to which the lender is lending the rehypothecated collateral to must also be assessed
We recommend clients only initiate bitcoin collateralized loans with lenders who do not rehypothecate collateral in order to eliminate the added risk created by rehypothecation
How your collateral is stored should also be considered. Multiparty collaborative custody and the ability to monitor funds on chain by holding 1 of n keys is the gold standard
This enables borrowers to cryptographically verify that their bitcoin collateral remains in a dedicated address and has not been rehypothecated
Rates on bitcoin collateralized loans must be adjusted for risk. Lenders who employ transparent custody practices and do not rehypothecate will charge a higher interest rate
With bitcoin poised to become the future reserve currency of the world, we feel it makes little sense to accept higher risk of loss for a slightly lower interest rate on loans
Unchained capital currently offers what we consider to be the gold standard product when it comes to bitcoin backed loans
Unchained does not rehypothecate client collateral and use a transparent multiparty multisig custody strategy whereby lenders hold 1 of 3 keys and verify their bitcoin on chain
--
21min