BTC as Collateral

Commercial real estate lending traditionally ties borrowing costs to central bank benchmarks, creating persistent cyclicality in interest rates and capital availability. By integrating Bitcoin (BTC) as additional collateral, Liquid Finance decouples CRE debt from these macro-driven cycles. As BTC appreciates, loan interest rates can decline by as much as 90%, driving up net operating incomes (NOI) and property valuations for borrowers. Meanwhile, the protocol’s capital suppliers gain a dual-yield benefit: stable CRE income plus BTC’s potential long-term upside.

Why Bitcoin?

As the first decentralized, non-sovereign monetary alternative to achieve broad global acceptance, Bitcoin avoids conventional counterparty risk, relies on no centralized authority, and is not tied to the economic conditions of any single nation. Because of these characteristics, it is fundamentally insulated from a range of significant macroeconomic threats, such as banking crises, sovereign debt defaults, currency devaluation, geopolitical tensions, and other nation-specific political or economic risks. In the long run, Bitcoin’s rate of adoption will likely benefit from concerns about global monetary instability, geopolitical friction, and the fiscal and political stability of the United States.

A Unique Diversifier

Furthermore, Bitcoin’s fundamental value drivers differ from those of traditional assets—real estate included—making it an effective diversifier when used as collateral. Its low long-term correlations with common macroeconomic variables strengthen risk management while boosting the yield potential for CRE debt. By combining Bitcoin’s growth trajectory with real estate’s steady cash flow, lenders and borrowers can benefit from a more resilient, market-driven financing model that is less vulnerable to conventional interest-rate cycles.

Within Liquid’s framework, real estate loans are backed by real estate assets, providing steady but limited interest income. To enhance loan security and deliver higher yields for investors, the protocol cross-collateralizes loans with Bitcoin—investing an additional 20-40% of the principal amount into BTC. If Bitcoin appreciates, the loan’s collateralization ratio strengthens, enabling lower interest rates for borrowers due to reduced loan risk. By adding an uncorrelated asset like Bitcoin, these loans generate dual yield for investors and offer indirect exposure to this decade’s best-performing asset class for borrowers—advantages not found in conventional lending models.

BTC’s Historical Performance

Over the past decade, Bitcoin has outperformed every major asset class in seven out of ten years, achieving annualized returns that exceed 100%. Remarkably, these annual returns were achieved despite experiencing four distinct drawdowns of more than 50% each.

Historically, Bitcoin’s lowest-ever 4-year compound annual growth rate is 25%+, which pairs well with the average commercial real estate loan life of 4–7 years. By allocating an additional 20% of the loan principal to BTC, Liquid is capable of lowering borrowing costs by 90% and generating annual returns of 20–40% for investors over 5–10 year periods.

New Interest Rate Paradigm

As Bitcoin (BTC) collateral increases in value, the improved collateralization ratio lowers lending risk, allowing lower interest rates for borrowers—ultimately pushing rates closer to zero. Today, a loan’s rate is typically split between a base rate and a risk premium. In the United States, the base rate has long been tied to Treasury yields set by the Federal Reserve’s FOMC. However, once the advantages of Bitcoin-backed lending become more evident—namely, stronger collateral, reduced default risk, and lower cost of capital—this FOMC benchmark may be superseded by a Bitcoin-based rate, determined by supply and demand for BTC-collateralized loans. In doing so, Liquid’s lending model frees borrowers from the cyclical rate shifts imposed by macroeconomic and political forces, ushering in a more flexible and market-driven interest-rate framework.

Risk Management and Volatility Controls

Loans are structured with conservative loan-to-value (LTV) ratios that consider potential BTC price swings. Even if BTC experiences a significant downturn, the protocol’s careful underwriting ensures the collateral remains sufficient to protect investor principal. All loan terms, collateral balances, and treasury details are recorded on-chain. Stakeholders can verify that BTC allocations remain robust, fostering trust and reducing reliance on intermediaries.

Dual Yield Return Profiles

Real estate lending, under conservative underwriting standards, typically offers interest rates in the 5–8% range. Adding BTC’s growth component can materially enhance the long-term return profile. Shown below are the rates of return of a $1M investment over a 4 year span under 3 different scenarios.

• Base Real Estate Scenario (5–8% Interest)

• Real Estate + Conservative BTC Growth (25%)

• Real Estate + Historical BTC Growth (82.5%)

These examples are illustrative, not promises. Actual returns depend on market conditions, borrower performance, and BTC’s price trajectory. Nevertheless, they demonstrate how BTC-backed lending can significantly enhance investor outcomes compared to traditional models.