Babel Finance is letting bitcoin mining firms put up their machines as loan collateral so the lender can offer them better terms.
The loan-to-value ratio (LTV) for these loans is 30%, in part because Babel keeps the freshly mined crypto until the borrower pays back the loan. The LTV is significantly cheaper than the 160% Babel normally charges, which means borrowers would need to put up $1.6 million worth of bitcoin in order to borrow $1 million in U.S. dollars. These loans allow the miners to cover expenses like paying electricity bills or purchasing new equipment while giving up less BTC or ETH.
The service launched in June 2020 and has since accumulated $22 million worth of machine-backed loans. Machine-backed loans now make up almost 5% of the company’s $450 million in total outstanding loans.
To offer the service, Babel has teamed with the world’s largest ETH mining pool, Spark Pool; one of the largest BTC mining pools, F2Pool; and bitcoin mining farm operators Hashage and Heng Jia Group. “For miners, the biggest asset they have is their machines,” said Lei Tong, Babel’s managing director of financial services. “After the March 12 price drop, they really wanted to keep as many coins as possible. Putting their machines up as a mortgage is a much better way for them to get loans versus using bitcoin.”
“Normally it would be six terms for six months,” Tong said. “When they pay the terms, we’ll release the coins mined by the machines.” Babel knows the type of mining machine that’s being offered as collateral so it can estimate the number of coins the machines should be producing.
Babel audits the machines daily by double checking the output that should be coming from each machine with the mining farms and pools. Ten secondhand machine dealers who regularly work with mining machine buyers also price the machines by looking at the computational power of the mining network and the price of the cryptocurrency, Tong said.
In the future, the lender wants to let miners use their machines to hedge against the risk of their cryptocurrency investments.