Collateral
How do I know if I have enough collateral?
You can monitor the status and health of your collateral for all your loans on the platform using the 'Collateral Health Indicator' (CHI).
What is a loan-to-value (LTV) ratio?
LTV, or Loan-to-Value ratio, is a financial term that represents the ratio of a loan to the value of the collateral. The initial LTV (e.g., 50%) is used to determine how much Bitcoin needs to be locked in the escrow contract to secure a specific loan amount.
For instance, to achieve an LTV of 50% for a $10,000 loan, you would need to deposit $20,000 worth of Bitcoin. If Bitcoin's price is $25,000, you'd deposit 0.8 Bitcoin (0.8 BTC * $25,000 = $20,000), resulting in an LTV of 50%.
If the LTV reaches 95% during the loan term, the collateral is automatically liquidated to repay the loan and return the proceeds to the Investor.
What is a collateral health indicator (CHI)?
CHI, or Collateral Health Indicator, is a metric used on the Firefish platform to assess the sufficiency of collateral securing a loan. The higher the CHI value, the healthier the collateral position.
A CHI of 100% signifies a fully healthy status, indicating that you have sufficient collateral as recommended by Firefish. However, as the CHI approaches 0, it's advisable to consider adding more collateral to avoid potential liquidation. When the CHI reaches 0, the collateral is subject to liquidation.
What is a liquidation?
Liquidation is a process that occurs when the value of Borrower's collateral does not sufficiently cover the value of the loan due to a decline in the price of Bitcoin, or in case the Borrower doesn't repay their loan at maturity.
In this case, the collateral is sent for liquidation and the proceeds are then used to pay off the loan.
When would my collateral get liquidated?
Liquidation can occur if the price of Bitcoin reaches a liquidation level (price liquidation) or if you fail to repay your loan at maturity (default).
For price liquidation, the actual level for each loan is displayed at your loan card as 'Bitcoin liquidation price'.
How does liquidation work?
There are two scenarios for liquidation:
- Default - Borrower doesn't repay their loan at maturity - Bitcoin covering the amount due, default interest of 15% p.a. for the additional period after maturity, and a liquidation premium of about 5% is used to settle the loan. The remaining Bitcoin is returned to the Borrower. See the Loan and Security Agreement, sections 5.1 and 5.3.
- Bitcoin price reaches liquidation price - in the event of a significant decline in the Bitcoin price that reaches the liquidation threshold, and if the Borrower neither adds more collateral nor repays the loan, their collateral is transferred to the liquidator. In this scenario, the entire collateral amount gets liquidated either via Self liquidation or Firefish liquidation process (see below).
Who is a liquidator?
There are two modes for the liquidation:
- Self-liquidation - Investors receive the entire Bitcoin collateral to their designated liquidation address, which they set during the deal setup process. There is no liquidation fee.
- Firefish liquidation - Firefish manages the collateral liquidation process. Investors receive their investment (the amount due) back in the loan currency, and Firefish retains any remaining value of the liquidated collateral. See the Terms of Service, section 12.3.
What is a liquidation price?
If the price of Bitcoin falls to a predetermined liquidation level, it triggers a liquidation event, and the collateral is liquidated.
The liquidation price equals a loan-to-value (LTV) of 95% and collateral health indicator (CHI) of 0%. The liquidation price is available in the loan details on the platform.
What if the liquidation price is reached for only a couple of seconds and the price later moves back?
Any drop below the liquidation price within the period examined by the Price Oracle is considered a liquidation event, even if the price later recovers. Do not rely on a quick price recovery. See the Collateral Escrow Rules, article V.
How can I avoid collateral liquidation?
The value of your collateral should always remain below an LTV of 95%. It is essential to maintain an adequate amount of collateral.
If the price of Bitcoin experiences a significant decline, we advise you to consider either topping up (i.e., sending more Bitcoin, using the "Top-up collateral" option of the "Loan actions" menu) using the platform's designated process or repaying your loan.
How does a collateral top-up work?
- Open the "Loan actions" menu of the loan and select "Top-up collateral".
- Enter the amount of Bitcoin you want to add. The app shows the resulting liquidation price, collateral health and LTV before you proceed.
- Transfer the Bitcoin to the single-use top-up address shown on the platform.
- Complete the top-up on the platform.
Please note:
- A minimum top-up amount applies and is shown on the platform.
- Each top-up uses a new address. Never reuse an address from a previous top-up or from the original escrow setup, and never send Bitcoin to a top-up address outside the guided process.
- Do not use replace-by-fee (RBF) or other fee-bumping on the top-up transaction.
- You can top up proactively at any time while the loan is active or matured, not only after a margin call.
- No origination fee is charged on top-ups; only the Bitcoin network fee applies.
Can I improve my loan-to-value by making a partial repayment of the loan?
No. A partial repayment has no effect on its own: it does not release any collateral and does not change your collateral health or liquidation price. Your collateral is released only once the full amount due has been repaid.
If you want to improve your collateral health, top up your collateral or repay the loan in full.
What is a margin call?
A margin call is an event which is triggered when your LTV hits a pre-defined level.
There are 3 margin calls levels: at LTV 73%, 79% and 86% (or CHI 33%, 22%, 11%).
If your LTV reaches any of these levels, you receive an email notification.
What should I do if I receive a margin call?
In an ideal scenario, you would choose to top-up your collateral through the platform or repay your loan.
Please bear in mind, that the loan repayment process might take longer, and if the Bitcoin price continues to decline rapidly, there's still a risk of a liquidation.
Can I withdraw excess collateral?
Currently we do not support excess collateral withdrawal.
We are considering to introduce this process in the future.
Can I receive more loans if the value of my locked collateral increases due to the increase of price of Bitcoin?
Currently not, but we are considering to introduce this feature in the future.
Which data source do you use for the Bitcoin price?
Firefish uses a market price index as defined in your loan documents. See the Loan and Security Agreement, definition of "Price index".