Babel Finance now allows bitcoin mining companies to put their machines as a loan guarantee so that the lender can offer them better terms. The loan-to-value LTV ratio for these loans is 30%, in part because Babel holds the freshly mined cryptocurrency until the borrower repays the loan.
LTV is significantly cheaper than Babel's 160% normally charged, meaning borrowers would have to put in $ 1,6 million worth of bitcoins to borrow $ 1 million in US dollars.
In a bull market, miners are increasingly uncomfortable separating themselves from mined cryptocurrency. "For the miners, the greatest asset they have is their machines," said Lei Tong, chief executive of financial services at Babel. "Placing your own machines as collateral for a mortgage is a much better way to get loans than using bitcoin."
A new service to support mining companies
The service launched in June 2020 and has accumulated $ 22 million in machine-backed loans since then. To offer the service, Babel partnered with Spark Pool, the largest ETH mining pool in the world; one of the largest BTC mining pools (here the quotation in real time), F2Pool; and bitcoin mining farm operators Hashage and Heng Jia Group.
Machine-backed loans now account for nearly 5% of the company's $ 450 million total outstanding loans. Babel Finance's main clients are miners, and the lender aims to help Chinese miners compete with Western institutions that are buying the machines in a competitive market, Tong said. These new buyers have increased demand but supply remains low due to the scarcity of computer chips that manufacturers use to create the machines.
How it works
The mining companies manage the machines by placing them as collateral for Babel and the lender keeps the cryptocurrency mined; This allows Babel to raise the full loan value even if the car's price is undervalued during a market crash, Tong said.
“Normally it would be six mandates for six months,” Tong said. "When they pay the terms, we will release the coins pulled out of the machines." Babel knows the type of mining machine that is offered as collateral so that he can estimate the number of coins the machines should produce.
Babel checks the machines daily by double checking the output that should come from each machine with the mining farms and pools. What's more, ten second-rate machine dealers constantly rate machines by looking at the computing power of the mining network and the price of the cryptocurrency, Tong said.
In the future, lenders will want miners to use their machines to protect themselves from the risk of their cryptocurrency investments. "It's pretty complicated," Tong said without elaborating further, but added that the cover would protect miners from losing their profits due to market crashes.
