Bitbond is great on paper, all the principles are solid.
But then there is this tiny little catch, which has nothing to do with the idea or its implementation.
The catch is Bitcoin and its volatility
I decided to dig a little deeper after reviewing bitbond.com two days ago and dug around in the terms of use.
This is all fine and good
Lending of bitcoins
- The user as a lender can offer a borrower a bitcoin loan. The offered amount of bitcoins has to be between a minimum amount (will be automatically displayed on the marketplace) and the amount that is left from the requested amount. The lent bitcoins have to be free of third-party rights.
- For an offer to be valid
the bitcoin account of the lender needs to be sufficiently funded with bitcoins.- With the offer a bitcoin loan contract is not closed, yet. The lender only gives a binding offer towards the borrower. The lender is bound to this offer during the auction. A bitcoin loan contract is only closed with the complete acceptance of the requested amount from the borrower
This is where the catch comes in.
Repayment of a bitcoin loan
- When a borrower's loan request was funded a payment schedule is displayed under "Funds" according to the terms as agreed between the borrower and the lender(s).
Borrowers ensure that their bitcoin account is sufficiently funded at repayment dates. Bitbond automatically transacts repayments from the borrower's account and credits the payment to the lender(s)
The repayment is in Bitcoin
If the price of bitcoin rises 500% in the 12 month term of the contract the borrower will find themselves in a position where it will be impossible to repay the loan.
I did find an interesting clause
Exchange rate pegged loans (ERP-loans)
Lenders and borrowers can also agree on a bitcoin loan where each repayment is pegged to the US dollar exchange rate exchange rate pegged loans (ERP-loans). When an ERP-loan is funded, the US dollar equivalent of the funded amount is calculated by Bitbond. Based on this calculation, the values of the payment schedule are calculated in US dollars. At the due date of a payment, the borrower has to pay a bitcoin amount, that is equivalent in value to the dollar value of the payment, as calculated by Bitbond at the due date.
This overcomes the Bitcoin volatility problem for the borrower if they are aware of this option and exercise it.
In this case the only risk to the borrower is fiat currency exchange risk, which mostly solves the repayments escalation problem.
However this creates new problem for the lender.
The lender loses out on the 500% gain in BTC price and only gets the 13% in USD or whatever the terms of the loan.
This is still better than many interest rates available in the developed world, so far better than a bank. (but risk of default)
So it would seem that this platform would attract the "mom and pop" type traditional investor to this type of contract rather than a "crypto" investor and BTC in these contracts would simply be the medium of exchange into and out of a fiat loan.
I just wonder how many of the borrowers and lenders are savvy enough to select the exchanged rate pegged option?
quoted text from bitcoinbond.com