Introduction to Crypto Loans

Crypto Loans are a financial service that provides you with funds to meet your short-term liquidity needs. It allows traders to obtain liquidity by borrowing without selling cryptocurrencies. Instead, traders use their crypto assets as collateral and pay interest, in exchange for other coins such as BTC, ETH or XRP, as well as stablecoins like USDT, USDC and so on.

 

Individuals may choose to take out a crypto loan rather than sell their holdings, especially when they believe their crypto assets will increase in value, and they want to hold the assets for a longer period.

 

Benefits:

• A variety of collateral and borrowable assets are supported
• Competitive interest rates
• Borrowed coins can be returned at any time before the due date
• Loans can be used to perform any trades or services on Bybit, such as Spot Trading, Derivatives Trading and staking in Earn products
• Withdrawal of your borrowed assets is supported

 

Cons:

• Liquidation Risk: When the LTV ratio is higher than the Liquidation LTV ratio, Bybit will liquidate your collateral assets to repay your loan and interest in full
• Overdue Interest: Borrowers will be charged 3x the hourly interest during the overdue period
• Late Repayment: When the borrower fails to repay the loan within the maximum allowable overdue period, the collateral assets will be liquidated due to overdue repayments and a 2% liquidation fee will be incurred.

Notes:

— Details of interest rates, collateral and borrowable assets can be found here.

— Interest is calculated according to the actual borrowing hour (less than one hour will be counted as one hour).

 

LTV ratio

Loan-to-Value (LTV) ratio is a key indicator for evaluating the risk level of your borrowed assets.

 

LTV = Loan Amount/ Collateral Amount

Loan Amount = ∑ (Outstanding Principal + Outstanding Interest + Outstanding Overdue Interest)

 

Bybit assesses risk by using the following three LTV ratios: 

• Initial LTV: The Initial LTV ratio determines the first amount of coins that can be borrowed. 

• Margin Call LTV: You’ll receive a notification to remind you to deposit or transfer more collateral to your Spot Account or Funding Account (for users who upgraded to Unified Trading Account), or repay the borrowed coins to lower down your LTV ratio to avoid liquidation.

• Liquidation LTV: Your collateral assets will be liquidated to repay the loan when the LTV ratio is higher than the Liquidation LTV ratio.

 

— For more information, please refer to Loan-to-Value Ratio and Liquidation (Crypto Loans).

 

How Crypto Loans works

Suppose Trader A expects the BTC price to rise and needs funds to capture investment opportunities. Currently, Trader A has 30 ETH in their Spot Account, and doesn't want to sell ETH for the time being. Using Bybit’s Crypto Loans service, Trader A can use the 30 ETH as collateral to borrow BTC assets of corresponding value.

 

The loan order parameters are as follows:

Price:

• BTC/USDT: 20,000 USDT
• ETH/USDT: 1,600 USDT

Exchange Rate: 

• BTC/ETH: 12.5

Initial LTV: 65%

 

Formula

Borrowable Amount = Collateral Amount × Initial LTV Ratio / (Exchange Rate of Borrowable Asset and Collateral Asset)

— Exchange Rate = Last Traded Price (Borrowable Asset) / Last Traded Price (Collateral Asset) 

 

Trader A uses 30 ETH as collateral and receives 1.56 BTC based on the following calculation:

 

30 ETH × 0.65 / 12.5 = 1.56 BTC

 

Differences Between Crypto Loans, Margin Trading and Institutional Lending

Crypto Loans, Margin Trading and Institutional Lending are all services that provide users with short-term liquidity. The main differences between the three products are as follows: