Deposit cryptocurrency and take out a loan
Users have different needs when it comes to finances. The first service MELD will offer is instant crypto-backed loans. First, a user will deposit their cryptocurrency to MELD as collateral. The protocol will then use the deposited cryptocurrency to create a collateralized debt position (CDP). A smart contract records the terms of the loan and registers it on the blockchain. Once confirmed, the protocol will execute a wire transfer directly to their bank account. Users will be able to manage their CDP directly from the MELDapp.
MELD can provide a much more capital-efficient CDP than any competitor on the market today due to the autonomous and transparent nature of the protocol. All contracts and terms are open and available for evaluation and auditing. All parts of the process automated, including the KYC/AML MELD can process all states of a loan in minutes and execute the smart contract in seconds.
Users pay back their loans in fiat, and it is registered in the MELDapp on the blockchain. This level of capital efficiency means MELD can offer more competitive rates and react to market conditions in seconds.
Loans are issued at a Loan to Value (LTV) ratio of 50%. If the collateral value falls to LTV 65% or stays above 50% for more than three days, a margin call is made. The customer is requested to provide additional collateral to bring the loan back to an LTV of 50%. When the LTV reaches 75% or stays above 65% for more than three days, the customer is requested to add liquidity to bring the LTV back down, and they are warned that if the LTV reaches 85%, they will be liquidated. If the LTV reaches 85%, a liquidation event happens where the collateral is converted to USD stable coins equivalent to fiat loan plus 5%. The balance of the collateral is transferred back to the customer, and the smart contract is completed. The customers keep the fiat they borrowed.
This protocol aims to innovate in the debt markets and create extremely capital-efficient products and services powered by blockchain technology and promoting availability, transparency, and empowerment. This will allow the protocol to provide the most attractive borrowing rates to customers worldwide.