In less than 10 short years Bitcoin has created a new asset class and global financial network using a beautiful synthesis of cryptography, distributed systems, game theory, evolution, software, and finance. Bitcoin solves a deep, unarticulated need felt by millions of people worldwide for a form of self-sovereign wealth. Blockchains have the potential to be the most impactful invention of our young century — if we only can make them more useful.
Speculation has been the predominant use case for owning Bitcoin or other cryptocurrencies. Crypto has limited use compared to fiat currencies. The US dollar has no learning curve, requires no special technology, and can be traded for anything on Earth in real-time. As a real-world “utility token,” the US dollar easily beats crypto assets. As a result, 60% of the Bitcoin money supply has not moved in the past 12 months. At time of writing, this corresponds to ~$96B in wealth sitting idle and unused in Bitcoin addresses.
But Bitcoin and other cryptocurrencies are still very young, and we believe that their utility will, in the long-run, surpass that of any fiat currency. In the coming decades, entrepreneurs will unleash new tradable tokens, investment products, games, prediction markets, novel marketplaces, and many other applications which will enrich the crypto world as well as forge strong relationships with fiat currencies and traditional finance. Unchained Capital’s mission is to encourage the development of this ecosystem by building honest, useful financial instruments which compound the value of crypto assets for long-term holders.
Lending is an ancient sector of financial technology, embedded into the management of traditional assets from personal property to real estate to securities. Yet it is entirely absent in the crypto ecosystem: crypto holders who need liquidity must choose between remaining cash-poor by holding their assets or foregoing all future appreciation by selling.
Holders need a way to borrow against the value of their crypto assets without needing to sell them.
This is why Unchained Capital’s first product is a crypto-secured loan: borrowers pledge their Bitcoin as collateral into dedicated cold-storage, multisig vaults and we extend them cash loans (up to $1M) for which they make interest-only payments. See full terms and product details on our homepage.
Holders obtain the following benefits from borrowing with us:
- SMART LIQUIDITY: Keep your appreciating crypto assets while spending depreciating fiat currency. (HODL!)
- DIVERSIFICATION: Take a leveraged position in other cryptocurrencies, ICOs, or uncorrelated, traditional assets such as the S&P 500.
- INCOME: Use the cash to make an investment in real estate or businesses which generate cashflow.
- COST-EFFICIENCY: Using your crypto assets as collateral allows us to access lower interest rates from traditional capital markets.
- TAX-SAVINGS: Selling cryptocurrency requires you to pay capital gains taxes which may cause you to sell yet more cryptocurrency in a vicious cycle. Borrowing avoids capital gains taxes entirely.
Unchained Capital has been giving crypto-secured loans for the past six months as part of a beta program to pilot customers. We have refined our product, hardened our security, secured lending capital providers, and are ready to extend our offering to crypto holders across the 28 US states in which we are currently regulated to do business, with more coming online each month.
If you hold significant crypto assets and you are thinking of selling them to lock in some gains or because you are making an investment or have an upcoming expense, please don’t! The graph below demonstrates that it is almost always better to borrow against your crypto assets than sell them:
So remember the Unchained Capital credo: Friends don’t let friends sell crypto.
What to Expect
Lending to Bitcoin holders is the first of many financial instruments that we intend on building at Unchained Capital.
- We are beta testing our loan product for Ethereum and will embrace other tokens as our customers demand them.
- We are partnering with banks and other institutions to power our loans as well as to develop other financial instruments.
- We are embedding our technologies in cryptocurrency exchanges, funds, and payment networks to extend our offerings across the crypto ecosystem.
We will maintain this blog as a place for company announcements, product updates, and reflections on the blockchain industry and the distributed future. We will also feature guest posts by other authors.