The COVID-19 pandemic and the recent bullish rise in BTC have prompted repeated stress tests for cryptocurrency lending firms – lenders were poised for a correction this week.
As noted by co-founder and managing partner of the Nexo lending platform, Anthony Trenchev, the recent fall in markets did not hurt the site as badly as the market crash in March 2020, but eliminated “excess debt burden.”
“Everything happened very quickly. Since the debt burden was quite high, the collapse was so serious, ”Trenchev said. “Now that it has been eliminated, we do not have such excessive borrowed capital to influence the system. That is why we are now seeing a recovery in markets. ”
Nexo cut its loan-to-collateral ratio a few weeks ago due to market turmoil, following Unchained Capital, which cut that figure to 40% in February.
“The fortune of users in bitcoin has grown and no one has complained about such actions. This made the correction period less stressful, ”said Joe Kelly, CEO of Unchained Capital.
This time around, the impact of margin requirements on Unchained’s loan portfolio was much less significant, Kelly said. In late April, cryptocurrency lender Celsius tried to help clients prepare for a market correction by warning them to add cryptocurrency to their accounts in the event of margin requirements.
Nexo and Genesis said they made “hundreds of millions” of dollars in margin calls as startups had more room to make margin calls and liquidations this time around. In March 2020, Nexo had $ 1 billion in assets under management, up from $ 15 billion now.
According to BlockFi CEO Zac Prince, margin calls affected about 10% of BlockFi’s loan portfolio this week, while the March 2020 crash resulted in liquidation affecting 25% of the retail loan portfolio.
“The BlockFi trading platform went down for a short time due to scaling issues associated with record volumes and activity, but the loan portfolio is fine,” added Prince.
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