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 notably cheaper than the 160% Babel typically 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.
As reported by Coindesk, in a bull market, miners are progressively uneasy parting ways with mined cryptocurrency. These loans allow the miners to cover expenses, such as paying electricity bills or purchasing new equipment while giving up less BTC or ETH.
Babel’s managing director of financial services, Lei Tong stated:
“For miners, the biggest asset they have is their machines. 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.”
In June 2020, the service launched and has since accumulated $22 million worth of machine-backed loans.
To offer the service, Babel has teamed with the world’s biggest ETH mining pool, Spark Pool; one of the biggest BTC mining pools, F2Pool; and bitcoin mining farm operators Hashage and Heng Jia Group.
Machine-backed loans now make up nearly 5% of the company’s $450 million in total outstanding loans.
Tong stated that Babel Finance’s primary customers are miners, and the lender is aiming to help Chinese miners compete with Western institutions who are buying up the machines in a competitive market. These new purchasers have increased demand but supply remains low because of a scarcity of computing chips that manufacturers use to create the machines.
In the future, the lender plans to let miners use their machines to hedge against the risk of their cryptocurrency investments.