· Interpretation of product logic and examples of application scenarios:
Users pledge BTC to Matrixport to get USDC loan with 0 interest. During the loan tenor, the collateral will not be liquidized regardless of the crypto price fluctuation. The LTV, take-profit price and loan tenor can be customized. The specific price depends on the real-time market. According to the BTC price on the maturity date of the loan, there are three results as follows:
1. BTC price < protection price. Customers do not need to repay the loan and are protected from price plummeting. Matrixport bears the risk of collateral value plummeting.
2. Protection price < BTC price < take-profit price. Customers will repay the loan on time and recover the collateral.
3. Take-profit price < BTC price. The pledged BTC will be sold at the take-profit price. Matrixport will return the equivalent stable currency assets after deducting the loan repayment.
· Foreseeable application scenarios:
A miner is in urgent need of working capitals to buy a new mining machine, and he chooses the Zero Cost Loan. At maturity of the loan, the BTC price rises above the take-profit price, thus the pledged BTC is sold at the take-profit price. Although he makes less profit from the rise of BTC price above the take-profit price, the pledged BTC is still sold at a relatively high price while the miner purchases the mining machine in advance for crypto production.
A digital asset investor believes that the BTC price will rise in the next four months, thus he chooses the Zero Cost Loan for investment. He pledges his BTCs to loan some cash while using the loaned cash to invest on more BTCs. Assuming that the BTC price rises at maturity, the pledged BTC and the later purchased BTC will make profits together.
· Traditional financial knowledge involved:
As the time spent in capital turnover is valuable, when customers enjoy the convenience of Zero Cost Loan, its plummeting protection and zero risks of liquidation, the only price customers need to pay is to give up part of the profits risen from the BTC price rise above the take-profit price,
The logic of Zero Cost Loan involves the option product in traditional finance. The “period” means that the loan maturity is a certain day in the future; the “right” is reflected as the customer and Matrixport exercise their rights according to the BTC price at maturity. The take-profit price and protection price correspond to the “specific price of an asset purchased or sold at a fixed price” in traditional financial option products.
In addition, Zero Cost Loan is also similar to the pledged loan in traditional finance, in which the borrower pledges the personal properties or rights to the loaning person or institution to obtain the loan.
· Advantages of Zero Cost Loan:
1. No loan interest will be charged.
2. Regardless of the price fluctuation during the loan tenor, there will be no need to call margins and the collateral will not be liquidized.
3. The BTC price at maturity of the loan will be locked within a limited range, and the loss from BTC price plummeting will be borne by matrixport.
4. The LTV and loan tenor can be customized according to the demands. The take-profit price and the protection price will also be set based on the mutual agreement of the customer and Matrixport, according to the BTC price on the day of the loan.
Another huge potential advantage is that the Zero Cost Loan is jointly endorsed by Bitmain and Matrixport. Matrixport offers a safe, transparent and professional platform for miners to loan and invest, while Bitmain brings an extra guarantee of technology and capital.
· Users suitable for Zero Cost Loan
1. If you are sensitive to loan interest rates and expect a loan with zero interest
2. If you don’t want to take the risk of potential collateral top-up or forced liquidation.
3. If you focus on stable yielding
4. If you expect the BTC price would not rise beyond the take-profit price at maturity, or that the rise of BTC to your take-profit price will already meet your investment target
5. If you want to have risk mitigation of drastic market declines in BTC at maturity
· Risks of Zero Cost Loan:
1. The biggest risk of Zero Cost Loan is that investors may give up the opportunity cost of potential BTC upside through the take-profit point.
2. As customers choose to pledge BTC for a loan rather than sell BTC right away, customers need to bear the risk of natural price fluctuation of BTC.
3. Zero Cost Loan does not meet the demand for prepayment. However, as the loan does not include any interest, prepayment is not necessary.
· Summary and recommendations
Zero Cost Loan arises from traditional finance and is a combination product of pledge loaning and options. It applies the fundamental rules of pledge loaning and is currently the first product of this category in the entire cryptocurrency society. At this moment, it only accepts pledging BTC to loan USDC.
The features of “No liquidation risks” and “Meltdown protection” are particularly attractive. Customers can borrow working capital from the Zero Cost Loan and obtain potential high profits in the elusive crypto market. Meanwhile, Zero Cost Loan also controls the potential loss within a limited range, while the biggest risk is that the investors may make fewer profits from the sharp price rise of the collaterals beyond the take-profit price.
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