Memecoin loans might be the thing that kick-starts the next Bull. In the last couple of months, over $1.7 million dollars worth of a memecoin called harrypotterobamasonic10inu (aka ticker $BITCOIN) were used as collateral for loans on Teller.
Here’s a story that went viral this week. A lender committed a $100,000 loan offer against BITCOIN at $.04 (which is 50% LTV (Loan-to-value)). That comes after the token had a huge run-up (to over $100M market cap),
Crypto Put Option Twist
In this example, the lender had a bullish outlook on ticker BITCOIN (long-term) but recognized the potential for a bearish trend (short-term) - particularly in three-days.
If the price of HarryPotterObamaSonic10Inu (ticker: $BITCOIN) experiences a substantial price drop during the loan, the borrower maybe unable to repay the loan and the lender could seize the collateral.
Strategy for Lenders
With an overcollateralized loan, the lender is in the money and protected by up to a 77% decrease in collateral value (using the current 350% average collateral ratio).
Although it’s an aggressive strategy, (with some risks) it does offer substantial yield for the lender. The average interest rate for ticker $BITCOIN loans is 79% APY.
Surprisingly, this unconventional strategy can be a win-win for borrowers and lenders.
The borrower can sell their assets without adversely impacting the liquidity pool, (and potentially buying back at a lower price to acquire tokens.)
Conversely, if $Bitcoin experiences an upswing, the borrower will pay back the loan and the lender can earn an above-market average APY.
Over $500,000 worth of USDC has been lent against the memecoin harrypotterobamasonic10inu on Teller. Moreover, similar techniques have been employed with other high-risk, high-reward crypto plays, with over $1 million worth of assets at play.
Collateralized crypto loans, used to get liquidity, short a token (all on-chain), or open a put option represent the next generation of DeFi lending. Though risky, strategies like this can mutually benefit both borrowers and lenders and lead to greater liquidity for illiquid and volatile assets (like memecoins).
It’s only possible with peer-to-peer loans on Teller.