CoinLoan’s yield generation model – key things to know
As a crypto lending pioneer, CoinLoan has always been true to its mission. Lending out digital assets to individuals and institutions has been, and always will be, our core business. Our customers include funds, exchanges, miners, and high-net-worth individuals. In addition to retail loans, a dedicated customization engine helps us meet the unique requirements of corporate clients.
Some companies in the crypto lending space provide unsecured or under-collateralized loans. CoinLoan finds such operations unacceptable as they entail excessive risks for the clients’ funds.
All of our loans are, without exception, over-collateralized.
Making liquidity work
For a crypto lending platform to be successful, its loan portfolio must be almost perfectly balanced. Achieving this in the real world is a tall order. Companies often find their balance tilted, mainly as a part of their liquidity remains unused until it is loaned out. It is, essentially, idle, as no yield is being generated.
For that reason, the CoinLoan team has developed in-house market-neutral strategies. They help us monetize the very same liquidity as it becomes available. You can think of market-neutral strategies as exploiting gaps between two spot markets, spread trading, market inefficiencies, and other price stability mechanisms.
The strategies mentioned above help us achieve two goals:
- generating yield with little downside risks
- gaining consistent returns at times when liquidity is unused
Another crucial point is our unfaltering avoidance of any engagement in DeFi protocols. Such endeavors would carry unforeseen risks to our funds.
We have seen many protocols being hacked or manipulated. CoinLoan cannot accept these risks even if such situations seem relatively unlikely.
Our company avoids any futures orders and other financial products that may cause margin calls and position liquidation.
We do not provide capital to market-neutral hedge funds that use their own yield generation strategies unless there is sufficient collateral to back them.
We would also like to point out the following:
- Most of our loans are borrowed at 70% LTV, corresponding to the highest interest rate available.
- The highest APY on Interest Account is unlocked via CLT Staking. Used by a relatively small group of CoinLoaners, it was originally designed as an extra bonus for early investors who bought the CLT token.
- The Origination Fee is also included in loan profitability calculations.
- A lot of borrowers on CoinLoan take advantage of its super-feature — Repayment with Collateral. Convenient and efficient, it includes some additional markup in the exchange rate.
- CoinLoan was the first crypto lending company to add a proprietary Exchange product to its ecosystem. This approach has proved fruitful — a lot of CoinLoaners use borrowed funds at our Exchange to pursue various financial strategies. We charge some markup for exchange operations, and this part of our business has seen exponential growth.
- CoinLoan has a dedicated unit that handles trading software and strategy development. We are proud and honored to have possibly the best tools on the market. They allow us to generate yield on assets through arbitrage and market-neutral strategies that work regardless of the direction of the market. As mentioned above, it is extremely difficult to generate consistent yield based exclusively on loans, as the demand for them varies throughout the year.
Our asset strategy
We do not seek to collect as many assets as possible. Managing dozens of billions of dollars (AUM) with high-interest obligations to customers often causes more trouble and stress than good. It makes some companies turn to high-risk initiatives to pay out the interest — for instance, unsecured loans, staking, DeFi, or investing in suspicious assets.
At CoinLoan, our primary goal is to always focus on quality, stability, and maximum efficiency of our resources, not on quantity and inflated growth numbers for future IPOs and equity investors.
Throughout the years, we have worked extremely hard to build an exceptional network of partners that value our services and are loyal to CoinLoan as their go-to platform for day-to-day borrowing. These relationships have always been based on trust and reliability, which we regard as our important competitive advantage.
This article covers the basics of CoinLoan’s yield generation strategy. Our team is working on a new post answering other questions from our community about liquidity, so stay tuned!