As a result of our success, we have raised the loan-to-value (LTV) ratio for the Stellar (XLM) Instant Crypto Credit Lines™ to 30.8%. Crypto lending’s LTV policies have the potential to improve the world of banking. Nexo is designed to leverage this potential through:
A credit line service that promotes equality and inclusive financial services.
Products that are risk-free for borrowing and interest-earning clients, as well as for Nexo.
Even higher LTVs as Nexo’s business grows, including our new 30.8% LTV for the Stellar-backed credit lines.
Credit Score No More?
In traditional finance, borrowers with good credit scores get higher LTV options as they are perceived as less likely to default on a loan. Naturally, this system privileges richer demographics, while excluding the less wealthy from valuable financial services. In the blockchain space, crypto lenders have the opportunity to remake the financial system by eliminating credit scores as criteria for their LTV policies.
To bypass excluding clients based on credit score, Nexo’s LTV policy is fixed for each asset, giving all clients the same loan-to-value ratio and interest rate options. However, as crypto is volatile, should a client’s assets depreciate in value (consequently raising their LTV), they must either partially repay their loan or add more collateral to avoid liquidation. All risk of loan default is mitigated with blockchain technology’s trustless mechanism. This allows Nexo to instantly liquidate collateralized assets only if a client’s LTV exceeds the permitted threshold of 83.33%.
As such, Nexo offers an inclusive banking service, opening cost-efficient loans to the underbanked and unbanked without exposing them or the company to additional risk.
LTV Policies in Crypto Lending
Some crypto lenders employ LTV policies that allow users to choose their LTV and provide them with a corresponding interest rate. Allowing clients to opt for high LTVs could bring their loan-to-value close to the liquidation threshold from the get-go. This puts clients’ assets at higher risk of liquidation, as well as costing them significantly more in interest.
Our generous fixed LTVs, matched with borrowing rates of just 5.9%, reflect Nexo’s commitment to making the Instant Crypto Credit LinesTM cost-efficient and secure for all our clients and the business.
If you are looking for more information about LTVs, check out our support page. We also have a specialized article on liquidations and how they work to keep the crypto lending industry secure.