Disclaimer: Information found on CryptoreNews is those of writers quoted. It does not represent the opinions of CryptoreNews on whether to sell, buy or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk.
CryptoreNews covers fintech, blockchain and Bitcoin bringing you the latest crypto news and analyses on the future of money.
The cryptocurrency lending firm Ledn has secured $188 million through the issuance of bonds backed by Bitcoin collateral. Holders of these securities receive payments funded by the revenue generated from crypto loans.
The bonds are secured by a pool of approximately 5,400 consumer loans issued by Ledn. The weighted average interest rate on these loans is 11.8%, with a total collateral value of $200 million. The bonds were issued with a premium of 335 basis points (3.35%) over the U.S. Federal Reserve’s base rate. Given Bitcoin’s volatility, Ledn has promised protection against price declines: automatic liquidation of collateral will occur if certain thresholds are reached.
Prior to the bond issuance, the company had to liquidate about a quarter of the loans initially intended as collateral: a 27% drop in Bitcoin’s price since mid-January triggered automatic sales of collateral even before the transactions were finalized. This involved 1,300 loans where the loan-to-value (LTV) ratio exceeded the threshold of 81.4%. Liquidations commence when the LTV surpasses 80%.
Related Posts
At the beginning of the year, Ledn’s portfolio included 5,441 loans issued to 2,914 borrowers. The collateral consisted of approximately 4,079 BTC, with an estimated value of $356.9 million.
According to S&P Global Ratings, the assessment of Ledn’s loans is based on the value of the Bitcoin collateral rather than the credit history of the borrowers. Consequently, in the event of a crisis, 79% of the loans could default, with an expected recovery rate of 68%. Investors may face losses of up to one-third of the principal amount, S&P warned. However, such an event has not occurred in the seven years of operation, the rating agency noted.
Recently, the cryptocurrency lending company ZeroLend announced its closure, citing a sharp decline in liquidity and increased risks of fraudulent attacks. Another lending platform, Moonwell, was hacked due to a vulnerability that arose from an artificial intelligence error.
