Crypto collaterals will have high credit demands for traditional loans in coming years, here's why

A couple of days ago I talked about cryptos'(tokenization) role in the advancement of fractional reserve banking, here I was specifically talking about stablecoins and CBDCs, of which if you could read through the article, you'd realize that CBDCs are just an example of a stablecoin(under the centralized type obviously).

That said, there is something going on that a lot of people are not particularly paying attention to, I mean, for like over two years ago crypto was still largely a joke, a lot of people considered it so, even the investors and traders within this ecosystem but things are changing, not a lot of people are catching up but that's the thing about technology advancements.

The Blackrock move to deploy a bitcoin ETF, Ripple winning legal battle and expecting that banks and other financial institutions may soon hop to leverage what Ripple has been building with XRP and of course, JPMorgan and its Onyx Blockchain for the tokenization of traditional assets.

What this is all pointing at is the entrance of trillions of dollars into the crypto markets and this simply breathes a sense of relevance of crypto to the banking sector and what do we know about the banks?

They are business developers, particularly funding shits with loans.

Yes, so much that has been built in the world today has one way or the other been funded by the banks, even bitcoin.

But the banks don't take risks, they place small bets until they get positive responses that shows how exactly they can profit if the venture into this or that on a large scale and this is exactly what is happening.

Crypto loans and bridge to traditional currencies and assets

You know how stocks are money and effectively almost used interchangeably within the walls of banking? Well, that is about to happen with crypto and so much virtual debts will be created in the process for economic expansion but make no mistake, this gets scary, you can see the full picture reading through "Stablecoins and CBDCs could take fractional reserve banking to a whole new level - the good and bad".

That said, what's more to come is the widespread acceptance of crypto as a form of collateral for individuals looking to take out loans from the bank.

Now you're probably wondering why they'd accept such a volatile asset as collateral for loans, well, to start off, there will be requirements obviously, think min and max amounts, over collateralization of the loans and so on.

The purpose of giving out these loans could be numerous depending on what gets built within the cryptocurrency ecosystem as time goes on, but looking at the current state of things, we can still figure out reasons starting with PoS blockchains.

PoS stands for "Proof Of Stake" and whoever holds a PoS chain token automatically has influence on governance, directly with his tokens. Who else loves influence and power? Especially when that brings money?

The banks of course.

So let's say the loans are over collateralized loans and borrowers would need to give say 40% more of the amount they are borrowing, depending on how volatile the currency or asset of collateral is.

So we are looking at min over 25% more value than what the bank is giving out(that is we're expecting the value to drop at least 10% in the short term), and you know, with the involvement of the banking system, most markets will not be highly volatile.

So instead of the bank directly buying a PoS chain token, it acquires them temporarily through loans with a 25% premium.

With these loans, the interest rates could be maybe 5%? 10%? 15%? Whatever it may be might not matter much because the bank could use these tokens to participate in chain governance and directly earn more tokens as the loan term runs.

So yes, to answer the question of why banks would accept crypto as collateral, asides the fact that it enables them to create virtual currencies that aren't backed by anything, it gives them more influence over crypto chains and directly profits them.

The interest placed on these loans may be the smallest piece of the income pie of running these loan markets. The effects of this of course is the centralization of many chains, this is why wide token distribution is more than crucial at this point because the banks are coming and they are not coming to bless you but to take from you and dominate you.