Reverse Margin Calls on Loans
What happens if your loan collateral increases in value? You can request a Reverse Margin Call on your loan!
If you’ve taken out a crypto-backed loan through the Celsius Network platform and your loan collateral asset price has increased substantially, you can request what is known as a Reverse Margin Call. Essentially, a reverse margin call is a loan refinancing tool where a borrower (person who was approved for the Celsius crypto-backed loan) can ‘rebalance’ their loan-to-value ratio to a more suitable level.
Why Request a Reverse Margin Call?
By requesting a reverse margin call, the borrower can ask for some of their loan collateral back. There are a couple of reasons for doing so:
- start earning rewards on the collateral that is released
- sell or convert it to other cryptocurrencies or fiat
- unlock collateral instead of closing a loan completely
How are Celsius Reverse Margin Call Processed?
Reverse margin calls are processed in 2 monthly time periods: middle of every month and at the very end of every month.
You can request a reverse margin call at any time during the month, but the Celsius Loans Team will add your loan to the queue for the next processing round.
What are the Guidelines?
The process of getting a reverse margin call is very quick and simple as long as you follow these basic guidelines:
- In order to calculate how much loan collateral can be released, the Celsius Loans Team uses the 10-day low asset price. For example: If you used Bitcoin as your loan collateral and BTC was trading between $39,000 and $48,000 during the previous 10 day period, Celsius will use $39,000 in their calculation.
- A borrower is only eligible for a reverse margin call if the Loan-To-Value (LTV) decreases at least 50% from what is indicated in their original contract. Currently, the 3 LTVs available for Celsius crypto-backed loans are 25%, 33% or 50%. For example: if a borrower took out a 50% LTV loan (the 8.95% APR option), they cannot request a reverse margin call until their collateral has appreciated to a price that pushes their LTV to 25% or less. Essentially, the asset needs to appreciate 100% (or double in price).
- You can request a reverse margin call once per month per loan (not per account, as we understand).
- Currently, reverse margin calls are not available for CEL token backed loans. This may change in the future.
Once approved, the released collateral will be deposited in your Celsius wallet, immediately earning rewards again.
To request a reverse margin call, you can contact the Celsius Loans Team directly at: firstname.lastname@example.org.
What Are My Reverse Margin Call Options? And How Does it Work?
You have 2 options for a Reverse Margin Call:
- Request a bigger loan (unlock more loan proceeds in fiat or crypto stablecoins, consistent with the proceed type in your original loan; remember that your monthly loan interest will increase with a larger loan)
- Release loan collateral (unlock a portion of your original loan collateral; once approved, the collateral is added back to your wallet and starts earning reward interest immediately)
Request a decrease to your LTV (Celsius Reverse Margin Call) in 3 ways:
- Increasing your loan by a specific amount in fiat or stablecoins
- Releasing a specific amount of loan collateral (ie. xxx BTC back into your reward earning wallet)
- Decreasing your LTV to a specific % (ie. 25% LTV or 30% LTV). The Celsius Loans Team will tell you how much loan collateral you can get back.
If you would like to request a reverse margin call for your crypto loan, please contact the Celsius Loans Team via email at email@example.com.
But What if My Loan Collateral Doesn’t Double In Asset Value?
As mentioned above, a borrower can only request a reverse margin call if their loan-to-value (LTV) drops at least 50%. For example:
- 1% APR / 25% LTV needs to drop to 12.5% LTV
- 6.95% APR / 33% LTV needs to drop to 16.5% LTV
- 8.95% APR / 50% LTV needs to drop to 25% LTV
But let’s say that your LTV is within a percent or two of being able to request a margin call. What options do you have?
- You can reach out to the Celsius Loans Team and see if they can be flexible for your specific loan.
- You can close your loan, wait a few weeks and then re-apply for another loan. Please note that if you close your loan within 6 months of opening it, you are still required to pay 6 month interest.
What are some Celsius Reverse Margin Call Examples?
Example #1: Bitcoin (BTC)
In our first example, a borrower used Bitcoin as the loan collateral for a $1,000 USDC loan. The loan was approved when BTC was $20,000. A few months later, BTC prices increased to $50,000.
Because Bitcoin prices more than doubled, all 3 loan options (1%, 6.95% and 8.95% APR) saw the current LTV drop to less than half the original loan-to-value (as indicated in the green highlighted cells).
As such, the borrower is able to request a reverse margin call, releasing BTC back into their wallet (earning rewards) and increasing their LTV back to the original values.
Example #2: Ethereum (ETH)
In our second example, a borrower used Ethereum as the loan collateral for a $1,000 USDC loan. The loan was approved when ETH was $1,000. A few months later, ETH prices increased to $3,000.
Because Ethereum prices tripled, all 3 loan options (1%, 6.95% and 8.95% APR) saw the current LTV drop to less than a third of the original loan-to-value (as indicated in the green highlighted cells).
As such, the borrower is able to request a reverse margin call, releasing ETH back into their wallet (earning rewards) and increasing their LTV back to the original values.