Why I Use Bitcoin as Collateral to Take on Debt

Bitcoin (CRYPTO: BTC) is one of the most flexible types of asset you can own. Upon first glance, it is not immediately obvious why this is the case. To the uninitiated, Bitcoin just looks like digits on a screen. However, in recent years, an enormous amount of infrastructure has been built up around Bitcoin to allow it to be useful in a variety of new ways. One of those ways is as collateral to take on debt.

Bitcoin can be used as collateral to take on debt

Bitcoin can function as collateral on cryptocurrency exchanges and decentralized finance (DeFi) applications. In either case a user can take out a loan against their Bitcoin. These loans use overcollateralization, meaning that the borrower must supply Bitcoin that's worth more than the amount they borrow. If someone puts up $10,000 worth of Bitcoin, then a typical application will allow them to borrow at least $5,000 worth of stablecoins such as USDT (CRYPTO: USDT). The debt typically accrues daily and may be paid back at any time without penalty. The Bitcoin is locked up until you repay the principal amount back, at which point you can withdraw it.

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Source Fool.com