Crypto Loans, a financial service for short-term liquidity needs, allows users to borrow cryptos for trading, investment, or withdrawal by collateralizing one or more types of other crypto assets, thereby increasing the liquidity and utilization of personal funds.
CoinEx supports a diverse range of collateral coins, allowing users to use multiple coins as collateral to borrow a single coin. The process is simple and convenient, providing users with the flexibility to choose from a wide array of options that best align with their asset portfolio.
Besides, the new feature comes with three key advantages: 1) high LTV, 2) flexibility of borrowing and repayment at any time, and 3) instant arrival. So, what are LTV ratios and discount rates? How are interest rates and liquidation fees calculated on CoinEx? Today, we will go through everything you need to know about Crypto Loans.
I. Loan-to-Value Ratio (LTV)
LTV is a crucial measure of the risk associated with a borrowed position. Expressed as a percentage, the metric shows the ratio between the current value of the assets to be repaid (including borrowed coins and accrued interest) and the value of the collateral, i.e., Current LTV = To-be-repaid Amount / Collateral Value * 100%.
CoinEx employs three LTV ratios to assess the relevant risks:
(1) Initial LTV: With Crypto Loans, the initial LTV can vary, depending on the specific collateral. This ratio determines the maximum amount a user can borrow with the specific collateral. To be more specific, Borrowable Amount = Effective Collateral Value * Initial LTV.
At CoinEx, the initial LTV is fixed at 75% for all loanable coins. For instance, with an initial LTV of 75%, a user staking 1,000 USDT could borrow a loan up to 750 USDT.
(2) Alert LTV: When the current LTV is equal to or higher than the alert LTV, CoinEx will remind users to add more collaterals.
(3) Liquidation LTV: When the current LTV is equal to or higher than the liquidation LTV, liquidation will be triggered, and the system will automatically sell the user’s collateral to make the repayment.
II. Discount Rate
The discount rate is determined by the risk profile of the collateral and used to calculate the effective collateral value. Effective Collateral Value = Collateral Market Value * Discount Rate. In Crypto Loans, discount rates vary across collateral coins. For example, the BTC discount rate is now at 100%, while ADA and DOGE come with a discount rate of 95%.
Let’s break this down through a specific example. If a user wants to borrow USDT by staking BTC with a market value of 100 USDT, given that the BTC discount rate and the initial LTV stand at 100% and 75% respectively, the effective collateral value would be: 100 * 100% = 100 USDT, and the maximum borrowable amount would be: 100 * 75% = 75 USDT.
It's important to note that CoinEx has set an upper limit of collateral value for each loanable coin. In other words, the effective collateral value cannot exceed this limit, regardless of the collateral size.
III. Interest Rates on CoinEx
1. Interest Rates
At the moment, the interest rates on CoinEx are fixed at 0.02% for all coins covered by Crypto Loans.
2. Interest Calculation
Once a loan is borrowed, one hour of interest is generated immediately. After that, the interest is calculated every hour based on the to-be-repaid amount, without compounding the unpaid interest.
Initial Interest = Current Borrowed Amount * Daily Interest Rate / 24
Subsequent Hourly Interest = To-be-repaid Amount of the Current Position * Daily Interest Rate / 24
IV. Liquidation Fees
CoinEx’s liquidation fees are charged after a position has been liquidated. The liquidation fee equals 2% of the amount to be repaid (borrowed amount plus interest). This fee is converted into the corresponding collateral coin based on the index price, and it is collected according to the liquidation sequence of the collateral. Once collected, the liquidation fee is then allocated to the Insurance Fund for the corresponding coin.
After the liquidation of a position and payment of liquidation fees, any remaining collateral coins will be returned to the user.
In cases where the loan has been fully repaid after collateral coins are exhausted, the system will automatically settle the debt with money from the Insurance Fund; in such cases, no fees will be charged following liquidation.
V. CoinEx Insurance Fund Explained
What sets CoinEx apart from many other exchanges is that its Insurance Fund is shared by Crypto Loans and Margin Trading. Specifically, CoinEx allocates a portion of its daily interest income from Crypto Loans and Margin Trading to the Insurance Fund, along with liquidation fees, to cover their clawback fees.
Going forward, CoinEx will continue to upgrade Crypto Loans. Follow CoinEx’s official website, blog, and SNS accounts for more product updates and educational content.
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