Long Vs. Short-term Borrowing

Why is it beneficial to borrow long-term against short-term.

Crypto-Backed loans ecosystem is thriving with different offerings and companies working in the field.

You can take out a loan directly from a company, from another person (facilitated by a P2P provider, such as Squilla.Loans) or even from a smart-contract.

But what are the key differences? In this post, we will go through the fee structure.

Centralized
First, let us talk about centralized crypto credits, like Nexo. They earn from the spread. They can attract money, paying to their investors 8% or yearly interest, while they offer loans for 11.9%. They have an offer when they give you a loan at 5.9%, but you need to pay it back with a highly volatile NEXO token, which is a completely different game for both parties.

So sticking to their normal rate, the difference between 11.9% and 8% is 3.9%, effectively making it a 32% spread. But this “fee” is accrued throughout the loan’s term.

DeFi
The majority of DeFi companies and protocols incorporated pretty much the same strategy.

But they usually have a variable interest rate, calculated against the supply utilization.

It gives customers an arbitrage opportunity and an ability to have awesome terms, bearing some risks, however. Since in some instances, the interest rate could skyrocket.

Peer-to-Peer Lending
Squilla.Loans went in a bit different direction. We let our users set their terms, and they are fixed. It is very convenient for long term financial planning.

Squilla.Loans automates settlement process, manages cashflows and collateral. Our algorithms do margin calls and protect both parties in the deal. In exchange, we ask for an origination fee at the begging of the loan. The fee is paid by the Borrower, this lets our users set way lower interest rates then centralized and DeFi solutions.


The graph above shows the difference in the accumulated interest payment between Squilla and Nexo.

As you can see, our service is financially more effective on the horizon of 6 months and more.