Underwriting and Liquidations
Last updated
Last updated
Summary
Credible lending pools provide yields exceeding market averages through secured loans to institutional clients. Comprehensive borrower underwriting and rigorous collateral analysis underpin robust risk management and capital preservation strategies. Continuous monitoring and advanced alert mechanisms facilitate rapid margin calls and collateral liquidation, thereby safeguarding lender assets. Yield generation is optimized through liquid staking and native staking, ensuring full transparency for lenders. The liquidation process involves collaboration with leading OTC desks, with potential engagements with centralized exchanges (CEXs) or decentralized exchanges (DEXs) to guarantee prompt execution, even when collateral is employed to enhance yield.
Introduction
Both Credible Direct and Credible lending pools achieve above-market yields for lenders by issuing secured loans to institutions, overcollateralized by liquid digital assets. The pledged collateral may also be utilized to generate additional yield, which is returned to lenders.
This article delves into the institutional-grade collateral management process designed to protect lender funds. The Credible team leverages extensive experience in traditional finance to establish robust procedures focused on risk management and capital preservation.
Prior to loan issuance, two fundamental analyses are conducted:
Before approving a borrower for financing through Credible, they must undergo KYC/AML checks and a thorough underwriting process. This includes:
Financial Analysis: Assessing the strength of the borrower’s balance sheet, defined mathematically as:
Operational Capacity: Evaluating whether the borrower possesses the operational sophistication to meet margin calls promptly in adverse market conditions.
Before accepting collateral, the asset undergoes an exhaustive approval process based on three critical factors:
Liquidity Assessment: Evaluating available venues for asset liquidation, including historical trading volumes and market liquidity. The derived liquidity ratio informs appropriate collateralization ratios (CR):
Volatility Metrics: Analyzing maximum historical drawdowns and market-implied future volatility using data from options pricing. This informs the acceptable loan-to-value (LTV) ratios: