Ledn Inc has become the first company to offer Canadian dollar loans to businesses or individuals accepting Bitcoin as collateral.
Founded by Bitcoin bull Mauricio Di Bartolomeo, Ledn is attempting to fill a gap in the market for Canadian citizens who need to borrow money but are unable to do so for whatever reason through the traditional banking sector. Bitcoin is a relatively popular investment choice for Canadians, with around 5% of the population reportedly owning the cryptocurrency.
The first of these loans have already been issued to Bylls, a Bitcoin payment processor operated by Satoshi Portal. Francis Pouliot, CEO of Satoshi Portal, explained that as a self-funded blockchain startup with profits in Bitcoin, it was never able to leverage capital for reinvestment as fiat-earning companies can. Using its Bitcoin funds as collateral for a loan means that the company does not have to sell its coins for new investment money. Using Bitcoin also to receive fiat credit also means it can avoid some of the price volatility of the cryptocurrency market.
There are some risks to this alternative loan method, however. One of these is custody issues; with no third party cryptocurrency custody service operating in Canada, Ledn is relying on cold wallets to store the funds which should theoretically make it impossible for hackers to gain access. If the loan recipient sends the Bitcoin to the wrong address they could also lose this money.
Market volatility means that margin calls are also a risk in the process, with assets potentially losing or gaining significantly in the space of hours, leading to difficulties between the two parties in terms of how much collateral needs to be sent. A sharp drop in the Bitcoin market could mean that the borrower no longer has enough to provide Ledn to get its loan.
Unchained Capital is a firm in the US that offers similar cryptocurrency-backed loans, although its target client is market investors.
Despite issues of volatility and custody, these emerging loans are offering a whole new way to do finance, recognizing cryptocurrency as a tangible asset that can be used and trusted. It brings a lot of potential for blockchain startups looking for funding but turned away from traditional loans because they do not operate primarily in fiat.
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