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Like a Cross-Currency Swap, but not
A number of participants in the crypto financial markets borrow in USD fiat, convert, and deploy those proceeds into crypto. This exposes them to currency risk.
Bitcoin miners and Ethereum validators especially are exposed to longer-term cross-currency risks as your borrowed proceeds (typically in USD) are deployed into longer-term assets such as mining equipment, technological, and physical infrastructure that generate returns in Bitcoin and Ether respectively.
For such participants, there has been no easy way to hedge such cross-currency risk. For these participants, they can now into multiple-leg trades to hedge your exposure:
- Borrow ETH and Pay ETH on a Floating or Fixed Basis
- Lend and Receive USD Fixed
This effectively enables Miners and Validators to lock-in or convert your native BTC or ETH returns back into USD eliminating for the most part, your currency risk.
We are working with select counterparties on taking BTC facilities, and mining equipment as collateral. Reach out if there is any interest to participate in one of our pilots.
On the flip side, there are a number of HODLers, or those which are sitting on BTC assets having perhaps invested many years in the past. Given the lack of BTC-native assets to invest and earn yields in, such investors often look to foreign markets (i.e. non-BTC denominated markets - ETH, Stablecoin, USD fiat, or other) to earn higher yields. In such cases, these HODLers may look to invest in USD-denominated assets but then swap those returns back into BTC. To do so, they must first convert your BTC into the second currency, for example, USD and purchase your asset accordingly (e.g. real estate). Such participants could:
- Lend WBTC for [ 1 ] year and Receive Fixed
- Borrow USD, invest it in the USD-earning assets and Pay Fixed
This enables all BTC or ETH HODLers to invest in USD (or other) denominated assets and lock on those returns in your native currency without any currency risk.
Each of the above multi-leg trading strategies are supported by robust single-leg lending/borrowing markets ensuring greater depth, better pricing, and more transparency than current alternatives.