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Giant Investment bank Goldman Sachs has allowed its clients to borrow cash using Bitcoin as collateral. The Bitcoin-backed loan model was granted using a special lending department within the bank. According to experts, the move could spur greater involvement by the financial sector in the cryptocurrency market.
Typically, large banks’ acceptance of a new asset class is viewed as a significant indicator of industry progress. The launch of over-the-counter bitcoin options is a considerable achievement for Goldman Sachs, which is among the first financial institutions of its kind.
The bank’s spokesperson told CoinDesk that they recently secured a lending facility, which is now used to lend collateralised BTC, with the borrower retaining ownership of the Bitcoin. All these credit procedures are structured in line with the 24/7/365-day risk management guidelines.
A Bitcoin-backed loan allows anyone to take advantage of the volatility of the cryptocurrency market by borrowing fiat currencies such as US Dollars, Sterling Pounds, Euros, and more. The loans are initiated by individuals who deposit their BTC into a Cryptopay account as collateral. In exchange, they receive a loan in their desired currency, which they can spend as they please. Backed Loans enable margin lending on the blockchain and exemplify a decentralised financial system built on Ethereum.
Such loans allow borrowers to obtain fiat currency by fronting their Bitcoin (or other cryptocurrency) as collateral, without having to sell.
As Goldman Sachs (GS) continues to lay the groundwork for its highly anticipated entrance into the cryptocurrency market, a new report finds that banking giants are steadily increasing their involvement in virtual assets, with many firms already participating in initial coin offerings (ICOs), buying and selling cryptocurrencies, and exploring the possibility of launching their own crypto products.
BlackRock, the world’s largest asset manager with $10 trillion in assets under management, announced the launch of a blockchain-focused exchange-traded fund (ETF). Under a $ 400 million funding arrangement, the company will also partner with the blockchain company Circle.
Propy, the blockchain real estate platform, announced a partnership with Abra to enable its customers to access home loans using cryptocurrency holdings as collateral. This new feature is included in all real estate purchases on the Propy platform.
Just last month, a new homeowner purchased an apartment in Austin, Texas, via USDC.homes, which is powered by Decentralised Title, Time and Location (DTTL) technology. USDC.homes is a platform where buyers can purchase properties from sellers who use the platform’s DTTL technology. In this case, the seller who sold the property on the USDC.The home’s platform is the previous owner of the apartment.
El Salvador is currently raising funds for its Bitcoin-backed bonds, which aim to raise $1 billion for the development of BTC City and to increase the size of the country’s BTC reserves.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
A Stablecoin is a cryptocurrency whose value is pegged to an external asset, such as fiat currency or gold, to maintain a stable value. Some cryptocurrencies offer several benefits; the most notable is that they do not require a central authority to process transactions, thereby enabling their use worldwide. However, crypto’s crucial debit is that crypto prices fluctuate frequently.
Therefore, these assets are complex for the public to use. Typically, people want to know how much money they have to make financial decisions. The inherently unpredictable nature of crypto contrasts with the price stability enjoyed by money. The value of currency, e.g., the U.S. dollar, is also affected by changes in value, but to a lesser extent than cryptocurrencies.
Stablecoins aim to mitigate value fluctuations by pegging crypto to a stable external reference – typically fiat currencies. Fiat is a currency issued by the government and used in daily transactions. Examples include the United States dollar ($), the pound sterling (£), and the Euro (€).
Generally, the reality propelling Stablecoin will comprise a” reserve “where it steadily stores the asset or basket of means supporting Stablecoin. They are pegged to tangible – world assets. Whenever a Stablecoin holder withdraws their assets, the total value of the withdrawal is subtracted from the standby cash reserve.
An intricate type of Stablecoin is collateralised with cryptocurrencies other than fiat currencies, yet it is still designed to track a conventional asset.
Maker is a renowned Stablecoin supplier that uses this medium and achieves this milestone using the “Vault, which locks up a holder’s crypto security. As soon as the intelligent contract proves that the guarantee is in place, the contract makes the holder eligible for a DAI loan.
Algorithmic Stablecoins are another class of Stablecoins. It is not collateralised. They are either burned or minted to preserve the coin’s value.
Finally, there are some drawbacks to Stablecoins, mainly due to their typical structure. Hence, it presents distinct challenges compared with other cryptocurrencies.
Cryptocurrency was designed to replace third-party firms that manage users’ funds. These third-party firms can block certain transactions. However, some Stablecoins can also block certain transactions.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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“Removing intermediaries does not remove risk — it redistributes it.” — DNA Crypto.
The history of finance is long and complex. You can better understand the new idea of adding the term ‘Decentralised’ by briefly reviewing the history mentioned. In the very beginning, finance had no say in human society. The basic needs were food, shelter, and, to some extent, survival. However, as time progressed, the need for human interaction became essential; to facilitate this, trade emerged. Trading during this period was basic: you exchanged what you had in abundance for what you lacked.
However, the problem with this trading method was the absence of clear criteria for determining the value of goods. As the variety of goods continued to expand, the desire for clear criteria also grew, thereby prompting the development of money systems around 600BC. Unfortunately, the narrative doesn’t end with this happy ending. A new problem has emerged: who should control the money systems? Having money under the control of a single entity. i.e., the government has one primary concern: the unrestricted printing of money. The invention of cryptocurrencies such as Bitcoin marked the first step in providing people with a reliable financial system. However, this can still not be considered decentralised finance, as most cryptocurrency financial transactions are conducted through centralised exchanges.
DeFi (version 2.0) is a rapidly growing sector in the crypto industry, comprising numerous projects across various blockchains. Most services provided by traditional financial systems can be performed through DeFi without the involvement of third parties, such as banks. This is the most prolific feature of DeFi. Most people believe that DeFi is the future of financial systems; these are some of the reasons that support this view: Error-free. The mismanagement of central banks and third-party intermediaries has caused a significant crisis in the current financial system. However, the introduction of smart contracts seeks to eliminate these day-to-day errors.
In the traditional financial system, obtaining a loan is a lengthy and often frustrating process. You must be available to complete several documents at specific times. However, for DeFi, it is quite different. You can easily get a loan from anywhere, anytime, as long as you are connected to the internet.
The outbreak of the Coronavirus exposed the vulnerability of our current financial systems. Centralised financial systems depend on interpersonal contact. For DeFi, the percentage of contact required for a financial transaction is zero. Freedom: In traditional financial systems, you must obtain permission from intermediaries to conduct any financial transaction. In DeFi, users can interact with financial services without asking for permission.
However, like any other system, DeFi also has its risks and disadvantages. Here are some of the challenges that DeFi projects face.
Other disadvantages of DeFi include low liquidity, over-collateralization, limited interoperability, and the absence of insurance.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice
