Decentralized Lending – How a Trader can use Decentralized Lending for LeverageFebruary 22, 2018
In the world of trading, there often comes a time when a trader encounters a difficult problem –running out of capital. This can be especially frustrating when the trader has taken a long-term position, and encounters excellent opportunities before the long-term position can be liquidated.
While the illiquidity problem may be frustrating, a solution is readily available! ETHLend is a Peer-2-Peer (P2P) lending platform on the Ethereum blockchain where users can use crypto assets such as Digital Tokens (ERC-20 standard) and Ethereum Name Service (ENS) domains as collateral. This fascinating new twist on P2P lending on blockchain can help traders by using their token holdings to get liquidity without giving up their positions.
When a trader takes a long-term position, the trade is predicting that the price of an asset will rise during a longer period, here defined as 3-6 months or more. The trader is essentially investing in a specific asset today, and then speculates on a value increase in the long term. A short-term position could be a few hours, days, or even a week.
ETHLend allows users to pledge digital tokens as collateral for loans, enabling them to keep their holdings while continuing to invest in new opportunities. For example, a trader who has taken a long-term position in EOS tokens and is planning to sell with a profit after 6 months once the EOS crowdsale ends, can use those tokens as a collateral to collect and use cryptocurrency without selling the EOS earlier than intended.
After a few weeks of watching their position, the trader comes across an opportunity to trade another cryptocurrency or a token. Usually, he or she would have to pass on this opportunity since the capital is tied up in the long-term position, but thanks to ETHLend, the trader is able to take the EOS tokens and pledge them on the ETHLend platform to receive a loan. With these funds, the trader is then able to take the advantage of the short-term investment. He or she is therefore able to benefit from holding two positions at the same time.
Once the loan is secured, the trader will be able to take the funds from the pledged long-term position and invest in short-term trading. Once the short position is closed, profits from the trade can be used to repay the loan. After the loan is repaid on the ETHLend marketplace, the EOS tokens used as collateral are returned to the trader. Now that the tokens have been returned, the trader can then continue to watch his or her position and then profitably close it at the right time.
Do you have an interesting trading idea that involves decentralized lending? Let us know on our Telegram: https://t.me/ETHLend
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