Strike has launched a new Bitcoin loan program, supported by a $2.1 billion credit facility provided by Tether. This initiative introduces volatility-proof loans that eliminate margin calls, reducing risk for borrowers while placing the risk on Tether.
The loan structure allows borrowers to take out cash using Bitcoin collateral without fear of liquidation due to price drops, as long as payments are maintained. For example, if a borrower posts $100,000 in Bitcoin, they can access $45,000 in cash under a 45% loan-to-value ratio. If Bitcoin’s value subsequently declines by 60%, the collateral would still cover significant portions of the loan, a situation where a typical lender would have liquidated the position.
This model departs from conventional lending practices, with Tether absorbing the potential shortfall. The ongoing merger proposal between Strike, Twenty One Capital, and Elektron Energy aims to create a comprehensive Tether-linked platform, encompassing various banking functions without the regulatory oversight of traditional banks.
In this emerging setup, Tether is effectively fulfilling six out of seven core banking functions:
- Deposits: Tether’s USDT is the largest stablecoin by supply.
- Lending: The company operates a loan book alongside the Strike credit facility.
- Payments & custody: Strike will facilitate payments in over 95 countries.
With this innovative approach, Tether is positioning itself as a key player in the Bitcoin economy, mirroring traditional banking operations while operating outside the conventional regulatory framework.
This material is for informational purposes only and should not be considered financial advice.
