Blog Technology Crypto is volatile. Your earnings aren’t. How we protect your principal during a crypto crash

Crypto is volatile. Your earnings aren’t. How we protect your principal during a crypto crash

date April 6, 2020 time 3 min read

Since cryptocurrencies first made headlines in 2017, the words “volatile” and “crypto” have appeared side-by-side in enough sentences to fill an encyclopedia set. 

While the crypto market has been more stable since the end of 2018, it’s still legendary for its huge rallies and falls. Just the other week, the price of Bitcoin crashed by as much as 47 percent. As a savvy investor, this probably makes you wonder:

If crypto is so volatile, how can I know my loan with MyConstant is secure?

Fortunately for you, we designed our system to account for volatility in the market so you don’t have to worry about losing your principal in a crypto market crash. In fact, through multiple crashes since we began operation in early 2019 investors haven’t lost a cent.

We’re going to tell you what happened during these flash crashes on MyConstant and how we made sure your investment stayed secure.

For more information on why we choose to use cryptocurrencies to secure our loans

A bit about crypto crashes

While the term “flash crash” implies the market crashes instantly and without warning, this is rarely what happens. A flash crash can take some time to fully make its way to the bottom. The big Bitcoin crash at the end of 2017 took a full year to plummet all the way down.

Actually, there’ve been dozens of “flash crashes” on the market since we started in the Spring of 2019. Many of them went virtually unnoticed by investors because of the systems we have in place to protect collateral. 

What happens on MyConstant during a crash

#1 We alert borrowers to top up.

During a crash, we do everything in our power to make sure borrowers keep their collateral.

We alert borrowers when their collateral falls to 125%, 120%, and 115% of the loan value. When the value drops to 110% or below, we liquidate collateral to protect your loan.

Even if there’s not much time to notify borrowers during an especially fast crash, this still doesn’t mean your loan will be liquidated. Borrowers can enable our auto top-up feature to have extra collateral from their wallets automatically added to their reserves if their collateral value falls too far.

If all fail-safes to protect borrower collateral fail, then our system moves to step two.

#2 Loans stop

If collateral drops to 110% of the loan value and is not topped-up by borrowers, then the loan is stopped immediately. This means the borrower no longer pays you interest. But don’t worry. In most cases, you’re getting that back.

#3 We liquidate the collateral

As soon as your loan stops, we withdraw borrower collateral from escrow accounts and sell it on exchanges like Binance. We always sell at the best possible rate. At MyConstant, we only support high-demand coins so we can always liquidate quickly.

#4 We transfer funds to you

As soon as collateral is liquidated on exchange we transfer funds back to your MyConstant account. Because we liquidate at 110% of the loan value, we usually have enough to cover your principal and any outstanding interest on your investment. Any remaining collateral (if any) is used to cover transaction fees we take on during the process.

Our goal is your trust

Our number one priority is the trust of our investors and borrowers. It’s how we make sure we can have the thriving marketplace and rates we do today.

Besides the above steps, we minimize the odds of crashes affecting your loan by limiting terms to nine months. For particularly volatile cryptos, we also require borrowers to put up over 200% of the loan value in collateral backing. This gives them a wider top-up window when markets slump.

Risk is everywhere, especially when investing. While crypto isn’t known for its stability, it has proven to be a liquid asset class. It even outperformed the S&P 500 in the first quarter of 2020 (and that’s with a price dip!). 

For more information on how we protect your funds, check out this post.

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Peter Upton

Peter Upton

Community Manager

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