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What is Lending?
Lending risks

Risks of lending your cryptocurrencies through BLOX

What is lending?

Crypto Lending involves lending your cryptocurrencies (cryptos) to others in exchange for a fee (in the form of returns). This is similar to the way traditional loans work. However, there are some differences. The fee you receive is not paid out in Euros, but in the crypto you lent out. For example, if you lent Bitcoin and receive a 3% return on it, you will receive the return fee in Bitcoin.

Lending crypto within BLOX is not the same as staking crypto within BLOX. When staking crypto, you make your coins available to the protocol for validating the transactions carried out on the blockchain. You thereby contribute to verifying that the transactions on the blockchain can be included in the blocks. In Lending, the cryptos are lent to the third party that uses them for its operations. What these cryptos are used for may be different for each party, so different risks may also apply. Staking and Lending within BLOX are therefore different services with different characteristics and risks. For more information on BLOX's staking product, see this page.

Lending risks?

It is common knowledge that there are risks involved in receiving returns. This also applies to lending your cryptos. For instance, the person (or party) lending the cryptos may not be able to repay this loan or pay the promised returns. You run the risk of losing your lent cryptos (or part of them). It is therefore important to consider whether crypto Lending suits you and whether you can and want to bear any losses. It is also important to understand the terms and conditions of crypto Lending well.

How does Lending work at BLOX?

You as a BLOX user decide whether and which crypto currencies you want to lend out. When you indicate in the app or browser that you want to lend out crypto, BLOX determines whether there is currently demand in the market for these cryptocurrencies and what yields apply to them. If there is demand for the crypto in question, BLOX can then make it available to a partner/project selected by BLOX. On the platform, BLOX lists coins that are currently available for Lending.

The premise is that you will periodically (weekly) receive a return payment in the form of the relevant lent crypto (or cryptos). The current rate of return is communicated on the platform. There may be changes to this from time to time. These are actively shared with you. You can decide to stop lending your crypto at any time. You indicate this in the app or browser.

Note: when you indicate that you want to lend out a specific crypto, all coins will be lent out. Even if you buy new coins with Lending enabled, these will also be lent out. The same applies to your received returns.

BLOX works together with a number of selected (lending) partners that have been thoroughly examined by BLOX in a due diligence process and have to meet a number of basic conditions. This involved checks on reputation, compliance and the financial health (liquidity, balance sheet, buffers, reserves) of these parties. In addition, to assess the risk of default, we assessed what these parties do with the lent crypto assets and the risk management framework around them.

Please note: if these parties do default, you as a user may lose (part of) the crypto you have lent out. BLOX bears no responsibility for any losses.

Finally, it is important to mention that BLOX's Lending product is based on supply and demand.

Only when there is demand in the market and when it fits within the policy set by BLOX will BLOX lend cryptos from its users. BLOX does not use these cryptos itself. In general, the more volatile the market, the more willingness to borrow in the market. In doing so, it can therefore happen that there is more supply to lend crypto than there is demand to borrow crypto. In that case, BLOX has the option to (temporarily) (partially) stop the loan product for a specific coin. This may mean that it is no longer possible to lend crypto or that BLOX repays the loans.

What measures has BLOX taken internally

Within BLOX, we have set up different buckets (separate pots) for the different services offered. Roughly speaking, there are currently three different services offered; trading, staking and lending.

Thus, all cryptos of users who only trade (trade) are in one bucket. The cryptos of users who stake (part of) their cryptos are in another bucket. And finally, the cryptos of users who lend (part of) their cryptos are also in a separate bucket. Moreover, each coin has its own bucket within the Lending bucket. For example, if you have lent Bitcoin to BLOX and something happens to the lending partner specifically for Bitcoin, it will only affect the users who lend their Bitcoin. Users who have lent out other crypto and/or are using staking or trading only will, in principle, not be affected. In this way, each bucket bears its own risk. You as a user choose the service you want to take (trading, staking and/or lending) and accept the risk involved. Users who consciously do not take any additional risks are therefore in principle not affected by any defaults of a lending partner.

When a Lending Partner (probably) cannot meet its obligations and (part of) the lent crypto or the returns thereof (probably) cannot be repaid, BLOX may execute a temporary freeze of the lent crypto. Users can then temporarily not turn off Lending and/or trade the lent crypto. It is then important to determine as soon as possible which part of the outstanding loans can still be repaid and which part cannot. If it turns out that it is not possible to recover all loans, BLOX can spread the lost amount proportionally among all users in the bucket for that particular coin. In this way, any loss is distributed among all users who have lent the coin in question and agreed to the risks.

What does this mean for me as a user?

You may be wondering, what could this mean for me specifically? Using three examples, we explain some possible scenarios.

Example 1 - a lending partner cannot pay out all promised returns

As a BLOX user, you have the following coins in your vault:

  • 0.1 Bitcoin,
  • 200 USDT
  • 0.5 Ethereum
  • 500 Solana

At some point you decide to stake your Solana, and you turn this on in the app. In the background, your Solana is placed in the Staking bucket; as a user, you don't notice anything about this. You will automatically receive periodic returns in the relevant crypto (in the example Solana). Next, you decide to lend out your Bitcoin and USDT by indicating this in the app. As indicated above, you lend out all your Bitcoin and USDT when you turn on this option. Your Bitcoin and USDT will be placed in the lending bucket in the background. As a user, you don't notice anything about this. You then receive a weekly payment for this in the corresponding crypto, which is also automatically lent out. The fee for you as a user at that time is 2%.

After six months of paying out returns, a lending partner unfortunately cannot pay BLOX the full agreed fee. The lending partner can only pay out 50% of the promised returns. As a result, the fee is reduced to 1% (50% of 2%) for you as a user.

Example 2 - a lending partner cannot repay part of the coins lent

We'll use the same example. As a BLOX user, you have the following coins in your vault:

  • 0.1 Bitcoin,
  • 200 USDT,
  • 0.5 Ethereum,
  • 500 Solana

You decide to stake your Solana, and you turn this on in the app. You then decide to lend out your Bitcoin and USDT by indicating this in the app. As indicated above, you lend out all your Bitcoin and USDT when you turn on this option.

Unfortunately, after six months of good returns, things rumble in the crypto market and one of the lending partners is unable to repay BLOX some of the Bitcoin lent to her. This concerns 10% of all Bitcoin lent through BLOX. When this happens, BLOX will apply a temporary freeze to all Bitcoins lent. BLOX will then apply a 10% correction to all users who have lent out Bitcoin at that time, proportionally distributed across all users' coins in this bucket. For you, this results in you losing 10% of your lent Bitcoin; 0.01 bitcoin.

At that point, your vault looks like this (the example does not take into account accrued returns):

  • 0.09 Bitcoin, (due to the 0.01 bitcoin loss)
  • 200 USDT,
  • 0.5 Ethereum,
  • 500 Solana

Your Solana, which is in the staking bucket, will not be affected by this. As will your Ethereum, which is currently in the trading bucket and not staked or lent. Your USDT is lent out, but because the lending partner could only default on the bitcoin loan, the USDT loan is not affected.

Please note: losses with one lending partner are distributed across all the lent crypto of a specific coin.

Example 3 - a lending partner goes bankrupt and the lent coins are lost in their entirety

Again, we will use the same example. As a BLOX user, you have the following coins in your vault:

  • 0.1 Bitcoin,
  • 200 USDT,
  • 0.5 Ethereum,
  • 500 Solana

You've staked Solana, and you decide to lend out Bitcoin and USDT.

After six months, it turns out that one of the lending partners is in dire financial straits and cannot repay BLOX all the Bitcoin lent to it. Since there is only Bitcoin lent to this party at the moment, 100% of all lent Bitcoin has been lost. For you, this results in losing all your lent Bitcoin.

At that point, your vault looks as follows (the example does not take accrued returns into account):

  • 0 Bitcoin, (due to the 0.01 bitcoin loss)
  • 200 USDT,
  • 0.5 Ethereum,
  • 500 Solana