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Mercado Bitcoin, one of the largest Brazil-based cryptocurrency exchanges, has launched a loan product allowing users to receive credit in Brazilian reais secured by crypto collateral. The credits will be limited to 30% of the total held in crypto in the exchange, and liquidations will not be automatically executed, being examined on a case-by-case basis instead.
Mercado Bitcoin Launches Crypto Collateralized Loans With Flexible Liquidations in Brazil
Brazilian centralized crypto exchanges are starting to offer crypto-based products in Brazil. Mercado Bitcoin, one of the largest cryptocurrency exchanges in the country, has announced a crypto-collateralized loan product that will be paid in national currency to its users. This is the first product of its kind offered by the company, which received a payment institution license from the central bank last year.
To avoid the high risks associated with liquidations, Mercado Bitcoin will limit the loans to 30% of the cryptocurrency users held by users in the exchange. This translates into a credit capacity of over $300 million, given that over $900 million are under exchange custody.
The credits will have an interest rate of 1.39% per month, one of the lowest rates for collateralized loans in Brazil, and only accept bitcoin and ether, the two largest cryptocurrencies by market capitalization. Other cryptocurrencies might be added at a later date.
Mercado Bitcoin stated that it would not liquidate customers’ collateral automatically. The exchange will seek to negotiate the execution and extend the client collateral until 35% if needed on a case-by-case basis, according to its CFO, Andre Gouvinhas.
This flexibility differentiates the platform from its decentralized finance counterparts, which execute liquidate users’ funds obeying smart contract logic. The credit can be used to purchase crypto on the platform. Mercado Bitcoin also allows users to withdraw these loans in national currency for other purposes.
Gouvinhas remarked that this lending product could help users leverage their crypto holdings to get liquidity without selling them. He stated:
With crypto-collateralized lending, we are able to offer greater efficiency and reduced costs to clients. This product allows clients to leverage themselves to take advantage of market opportunities without having to divest their assets.