Assessing the variability of crypto collateral assets in secured lending on the blockchain

ABSTRACT

The objective is to assess the variability of collateral crypto-assets used in secured lending on the blockchain. Using the coefficient of variation, the study estimates volatility of selected assets and implied risk intensity for both borrowers and lenders on blockchain-based lending. The coefficient of variation model was adopted by testing volatility. The model produced a number of key empirical observations from January 2017 to December 2018 reflecting market swings resulting in volatility, despite its simplicity, using Bitcoin, Ethereum and Ripple crypto-assets. The results of the study provide clarity on the crypto-assets bullish and bearish markets and whether there is a correlation between crypto-assets and Bitcoin market dominance. The recommendations include that financial institutions should de-risk their investment, participate in the crypto-currency domain and ensure financial inclusion; concepts of traditional asset-backed lending could be implemented by looking at 50 percent loan-to-value ratio.

KEYWORDS:

• Innovative finance
• financial inclusion
• digital finance
• blockchain
• crypto-currency
• secured lending

Disclosure statement

No potential conflict of interest was reported by the author(s).