Babel Finance is letting bitcoin mining firms put up their machines as loan collateral so the lender can offer them better terms.

The loan-to-value ratio (LTV) for these loans is 30%, in part because Babel keeps the freshly mined crypto until the borrower pays back the loan. The LTV is significantly cheaper than the 160% Babel normally charges, which means borrowers would need to put up $1.6 million worth of bitcoin in order to borrow $1 million in U.S. dollars. 

In a bull market miners are increasingly uneasy parting ways with mined cryptocurrency. These loans allow the miners to cover expenses like paying electricity bills or purchasing new equipment while giving up less BTC or ETH.

The service launched in June 2020 and has since accumulated $22 million worth of machine-backed loans. 

To offer the service, Babel has teamed with the world’s largest ETH mining pool, Spark Pool; one of the largest BTC mining pools, F2Pool; and bitcoin mining farm operators Hashage and Heng Jia Group.

Machine-backed loans now make up almost 5% of the company’s $450 million in total outstanding loans.

Mining farms operate the machines while holding them as collateral for Babel, and the lender keeps the mined cryptocurrency; this allows Babel to collect the full value of the loan even if the price of the machine is undervalued during a market crash, Tong said. 

“Normally it would be six terms for six months,” Tong said. “When they pay the terms, we’ll release the coins mined by the machines.” Babel knows the type of mining machine that’s being offered as collateral so it can estimate the number of coins the machines should be producing. 

In the future, the lender wants to let miners use their machines to hedge against the risk of their cryptocurrency investments.

“It’s quite complicated,” Tong said without elaborating further, but he added that the hedge would protect miners from losing their profits from market crashes.

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Babel Finance Is Letting Crypto Mining Firms Use Machines as Loan Collateral

by Mario Herndon
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