What is Secured Loan?
By collateralizing cryptocurrency, such as BTC or ETH, you can unlock the value of your assets and access more liquidity without having to sell. In other words, you don't have to choose between holding onto your assets and exploring new investment opportunities. Instead, you can leverage your holdings for stablecoins, allowing you to diversify your portfolio and capitalize on additional investment possibilities.
How does Secured Loan work?
When applying for a secured loan on the XREX crypto-fiat exchange, you are opted to select the loan-to-value (LTV) ratio, which typically ranges from 20% to 70%, and varies depending on the collateral assets. This ratio represents the percentage of the specific loanable asset's value that can be borrowed, allowing you to tailor your loan amount accordingly. For example, if the collateral is valued at $10,000 and you choose an LTV ratio of 50%, you would be eligible for a loan amount of 5,000 USDT. It is essential to carefully choose the LTV ratio based on individual borrowing needs, risk tolerance, and the varying LTV ratios associated with different collateral assets, ensuring access to the desired funds while maintaining an acceptable level of risk.
What are the benefits of using Secured Loan?
Collateral & loanable assets
Currently, there are two primary collateral assets supported: Ethereum (ETH) and Bitcoin (BTC). You can collateralize either of these cryptocurrencies to secure a loan in USDT. It's important to note that while these are the current collateral and loanable assets we offer, we have plans to introduce additional options in the future.
Common terms to know
Loan term (Flexible)
The flexible loan term means you have the ability to repay the loan at your convenience, without any specific time constraints. However, this doesn't apply if your position has been liquidated.
The collateral refers to the assets pledged as investment principal to guarantee the loan position you open is going to be repaid.
The loan-to-value (LTV) ratio is a crucial measure for assessing risk as it compares the loan amount to the value of the collateral provided, and it can vary depending on the collateral assets.
A lower initial LTV ratio, typically ranging from 20% to 70%, is generally considered low risk. As the LTV ratio approaches the margin call level, which typically falls between 70% and 80%, the risk level increases to medium-to-high. If the LTV ratio reaches around 85%, the liquidation process may be initiated. Learn more about LTV, collateral adjustments, and find answers to frequently asked questions.
The margin call refers to a situation where the value of the collateral assets, such as BTC and USDT, goes above a specified threshold set by the loan-to-value (LTV) ratio. When a margin call occurs, you required to provide additional collateral or repay a portion of the loan to restore the LTV ratio to an acceptable level.
The liquidation process is a protective mechanism that occurs when your LTV ratio exceeds a certain threshold, typically around 85%. When the liquidation price is matched, your collateral will automatically be sold to repay the outstanding loan amount, and the return of the collateral after liquidation will be dependent on the remaining value after the forced sell and borrowing return. Learn more about liquidation and other frequently asked questions.
The liquidation price is the price at which the collateral used to secure the loan would be automatically sold to repay the outstanding loan amount.
The total debt refers to the cumulative amount borrowed. It represents the sum of the principal amount borrowed and any accrued loan costs associated with the loan.
The loan ID is a unique numerical identifier assigned to each position. It simplifies the process of tracking all the specific details and events associated with a particular loan.
Explanation of Loan cost
Explanation of Loan cost
Details pertaining to loan cost:
Annual loan cost: XREX adjusts the loan cost based on market conditions. Please refer to the interface for the most up-to-date rates.
Hourly loan cost: The loan cost, which accrues during the active duration of your loan, is calculated on a per-hour basis. This calculation begins at the borrowing time, rounded down to the nearest whole hour, and includes the loan cost for the first hour. For example, if you initiate a loan at 16:19, we consider the start time as 16:00 (rounded down to the nearest whole hour) for loan cost calculation. If you proceed to repay the loan the same day at 18:14, the total charges will cover three hours. This is because we round up the repayment time to the next whole hour, 19:00, thereby incorporating the loan cost for the 18:00 to 19:00 hour.
The formula for calculating the hourly loan cost for a $500 loan with an annual loan cost of 10% for USDT is $500 * 10% / 365 / 24. Please note that the annual loan cost for USDT currently stands at 10%, with loan cost applied every whole hour, calculated as UTC + 0. It's important to remember that loan cost can fluctuate based on market conditions.
Repayment: When you make a repayment, whether it's partial or full, the loan cost accumulated up until the next whole hour are included in the repayment amount.
Loan-to-value (LTV): Loan cost that accumulate during the position, affects the LTV ratio. This means that as time passes and the price of collateral assets remains stable, the loan amount increases, influencing the LTV. However, if the price of collateral assets surpasses the accumulated loan cost increase, it can have a significant impact on the LTV ratio.
Other frequently asked questions
Other frequently asked questions
What is the loan-to-value (LTV) ratio, and how is it calculated?
The LTV ratio is a key factor in assessing risk and determining loan amount. It represents the percentage of the collateral's value that can be borrowed. For example, if the collateral is valued at $100,000 and the chosen LTV ratio is 50%, the borrower can receive a loan of $50,000. The LTV ratio helps borrowers and lenders evaluate risk and make informed decisions about loan positions. It ensures responsible lending practices and allows borrowers to utilize their collateral effectively while obtaining the desired funds.
LTV proportion varies, depending on the collateral asset. Furthermore, XREX has the right to adjust the loan-to-value (LTV) from time-to-time depending on market dynamics.
What happens if the loan-to-value (LTV) ratio reaches around 85% in a secured loan position?
When the LTV ratio approaches 85%, it can result in liquidation. If the price of the collateral asset, such as Bitcoin (BTC), experiences a significant drop, causing the collateral value to decrease, it may no longer cover the outstanding loan balance. As a result, the LTV ratio can exceed 85%, triggering the liquidation process. Monitoring the LTV ratio and being mindful of market fluctuations is essential to avoid the risk of liquidation.
Can I adjust the size of my collateral after I have borrowed stable coins?
Yes, you have the flexibility to adjust the size of your collateral even after borrowing stablecoins. This allows you to make changes to your loan position and manage the LTV ratio according to your needs and preferences. By increasing or decreasing the collateral, you can adjust the risk exposure and ensure that the LTV ratio aligns with your desired level of risk. See our step-by-step instructions on how to adjust collateral.
What is margin call, liquidation and its implications?
A margin call serves as a critical notification for borrowers, indicating that their collateral's value has dropped, and it represents their final opportunity to take necessary actions to protect their positions.
When the collateral of your secured loan fails to meet the necessary margin requirements and the LTV reaches 85%, the liquidation process is triggered. During liquidation, your loan position will be forced to sell and return the borrowed assets at the liquidation price. Any remaining value of the collateral will be returned to your spot wallet.
It's essential to understand the implications of liquidation, as it may lead to losses beyond the initial margin requirement. Liquidation can occur rapidly, particularly in volatile markets. Therefore, it's crucial to monitor your positions closely and maintain adequate collateral at all times. Understanding liquidation and its implications is vital for successful trading and risk management.
Please note that once the liquidation process is triggered, it is automatic and won't stop until it's been completed, furthermore:
The return of the collateral after liquidation will be dependent on the remaining value after the forced sell and borrowing return.
If the market price is highly volatile when the liquidation happens, the loss may be all of the collateral.
Is my collateral safe on XREX?
Absolutely. XREX prioritizes the safety of your collateral, employing robust security measures and following compliance regulations to ensure the protection of user assets.
Who should use secured loan?
Those who have crypto assets on hand and would like to trade more: If you have crypto assets on hand and would like to trade more frequently, Secured Loan can help you unlock the value of your assets and put them to use in the market.
Those with lower risk tolerance who would like to participate more in the market: If you have a lower risk tolerance and prefer to buy and hold your crypto assets, Secured Loan may encourage you to participate more in the market.