Unchained Capital is a company that will lend you US dollars, using your bitcoin holdings as collateral. Why would you want to do that? A key motivation is to avoid the tax liabilities one faces when selling highly-appreciated bitcoin.
Unchained require you to provide twice the amount of the loan value in BTC, and charge an interest rate, including all fees, of between 10% and 14%. The default terms allow you to make interest-only payments during the loan period, with a balloon principal at the end. If the value of your BTC drops to 150% of your loan value, they ask you to provide more collateral—what they refer to as “collateral maintenance”—and if BTC drops to within 110% of your loan value, they have the right to consider the loan in default, sell your BTC, return the principal, and pay you anything left over.
So this all sounds great.
I became particularly intrigued, however, when the conversation turned to the advanced custodial systems that Unchained Capital are developing. A while back, I posted an article outlining my ideal cold storage solution—something that doesn’t exist today.
Considering those two things together, I began imagining the ideal Unchained Collateral product I’d love to have available:
- I would hold two wallets with Unchained, a personal wallet and a collateral wallet.
The personal wallet is where I keep all my personal bitcoin holdings. It’s my cold storage solution, and checks as many of the boxes in my previous post as possible. Unchained holds one of the keys to this M-of-N multisig wallet.
Based on my personal holdings, Unchained extends a pre-approved line of credit to me.
Whenever I need US dollars, I simply make an online request that involves signing a transaction to transfer the required amount of bitcoin to the collateral wallet.
My Unchained account is ACH linked to my bank account, so that once I complete the request process, my funds can be immediately transferred into my bank account.
Since my bank account is linked, I have an option such that my interest payments are auto-debited from my account.
When I want to pay off the principle of my loan, I login to my Unchained account, and can initiated a “settlement” transfer precisely for the outstanding principle and interest (the amount of which, is conveniently pre-calculated for me.)
If collateral maintenance is ever required, I get an email asking me to sign into my personal wallet, and authorize the necessary transfer to the collateral wallet.
As my track record on the platform builds over time, I earn improving interest rates, incentivizing me to become a long-term customer.
This would be a beautiful solution, that solves my cold storage challenges, while at the same time providing me a line of credit, the use of which couldn’t be more convenient.