Breaking: Bitcoin Enters Banking System: El Salvador’s Cuscatlan and Agricola Accept it for Loans

El Salvador may be the most enthusiastic country to adopt Bitcoin. In addition to declaring it legal tender and investing in Bitcoin mining, the country now allows Bitcoin to serve as collateral for mortgages.

Two major banks in El Salvador, Cuscatlan and Agricola, have announced that they will now accept Bitcoin for loan payments. Customers can use Bitcoin to settle credit card debts or loans directly, eliminating the need for fiat conversion. This groundbreaking move was revealed through a tweet by Volcano Energy, a key player in El Salvador’s emerging crypto landscape.

The announcement aligns with El Salvador’s broader strategy to integrate cryptocurrency into its financial infrastructure. This is not just another step for Bitcoin adoption in El Salvador, but a significant move that could set precedents for the banking industry globally.

Legal Tender and Bitcoin Mining

In a landmark decision that garnered international attention, as reported by Blockchain.News, El Salvador’s President Nayib Bukele announced in June 2021 that the nation would be the first to make Bitcoin legal tender. Prior to this, Bitcoin had largely been regarded as a speculative asset, notorious for its price volatility.

on June, 2023, Volcano Energy, known for its renewable energy ventures, appears to be broadening its ecosystem to financial services that facilitate cryptocurrency transactions. The company has previously announced a $1 billion investment in a Bitcoin mining startup. This was part of a renewable energy initiative backed by Tether, aimed at making El Salvador a global hub for sustainable Bitcoin mining.

While the announcement focuses on financial transactions, the sustainability angle offered by Volcano Energy shouldn’t be ignored. El Salvador is already utilizing renewable resources for Bitcoin mining, and the same sustainable approach could be adopted for transactional services. As the nation attempts to make its financial system more resilient and self-reliant, sustainability may serve as a cornerstone.

Regulatory and Financial Implications

El Salvador has been a forerunner in cryptocurrency adoption since it made Bitcoin legal tender in September 2021. However, this announcement from Cuscatlan and Agricola Banks, facilitated through Volcano Energy, could have far-reaching implications. It is yet to be seen how international bodies like the International Monetary Fund (IMF) and even US Federal Reserve will respond to El Salvador’s banks incorporating Bitcoin payments for loans and credit cards.

What’s Next?

As cryptocurrency becomes increasingly integrated into El Salvador’s financial and energy sectors, the acceptance of Bitcoin by Cuscatlan and Agricola Banks marks a significant stride. This could pave the way for broader financial inclusivity and innovations in banking transactions, powered by renewable energy and blockchain technology. While it is too early to predict the full impact of this development, it surely positions El Salvador as a testbed for a new form of banking that incorporates cryptocurrencies.

Image source: Shutterstock

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Bitfarms Settles Debt with BlockFi

Bitfarms, a company that mines for Bitcoin (BTC), has fulfilled its financial obligations to BlockFi, putting an end to the short-lived commercial agreement that it had with the now-defunct cryptocurrency lender.

Bitfarms said on February 9 that it has completed its debt obligations to BlockFi in the sum of $21 million in return for a single cash payment of $7.75 million. This news came shortly after Bitfarms received the cash payment. After Bitfarms issued a warning that it may default on the loan it had taken out with BlockFi, the deal was struck some weeks after the warning was given.

According to statements made by Bitfarms’ chief financial officer, Jeff Lucas, this fruitful discussion and settlement moves our efforts to decrease indebtedness one step closer to completion. This successful negotiation and settlement helps advance our goals, especially when considered in conjunction with the prior reorganization and the termination of our obligations regarding capital expenditures in December.

Backbone Mining Company, which is located in the state of Washington and is a wholly owned subsidiary of Bitfarms, serves as the pivotal point of connection between the two companies, Bitfarms and BlockFi. Backbone Mining received a loan from BlockFi in the amount of 32 million dollars in February 2022 for the purpose of supporting equipment purchases. On the 31st of January in the year 2023, the entire amount of the loan’s principal and interest that was still due amounted to $21 million.

As a consequence of the settlement, all of Backbone’s assets, which currently comprise 6,100 miners, are free and clear of any liens or encumbrances that may have been attached to them before.

BlockFi submitted its petition to file for bankruptcy under Chapter 11 on November 28, just a few short weeks after the fall of the cryptocurrency exchange FTX. The fate of the lender seemed to be tied on the success of Sam Bankman-crypto Fried’s business in July 2022, when FTX US provided it with a rescue package for 240 million dollars.

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BankProv Stops Offering Loans Secured by Crypto Mining Rigs

After wiping down $47.9 million in loans that were mostly secured by cryptocurrency mining rigs during the year 2022, the holding company for the cryptocurrency-friendly bank, BankProv, has announced that it would no longer provide loans that are secured by cryptocurrency mining rigs.

Since September 30, 2022, BankProv has, according to a document that was submitted to the United States Securities and Exchange Commission (SEC) on January 31, 2019, the percentage of its digital asset portfolio that is comprised of rig-collateralized debt has practically been cut in half.

As of the 30th of December in the previous year, the bank held a total of $41.2 million in loans related to digital assets. Of this total, $26.7 million was worth of loans that were collateralized by crypto mining rigs. However, this amount “will continue to decline as the Bank is no longer originating this type of loan.”

During the bull market of 2021, the cryptocurrency mining sector took on enormous amounts of debt, and miners often offered mining equipment that they owned as collateral in order to reduce their interest rates and save money.

The ensuing bear market that began in 2022 resulted in difficult circumstances for miners. As a consequence, many miners were obliged to sell the Bitcoin (BTC) mining rigs they possessed in order to fund their operational expenses, which resulted in a precipitous drop in the price of mining gear.

In spite of the lowering prices, several financial institutions that had issued debt that was secured by mining rigs were required to reclaim some of the miners that had been pledged as security.

A prior filing with the SEC indicates that on September 30, 2022, BankProv confiscated mining rigs in return for the forgiveness of $27.4 million in loans. As a consequence of this transaction, the company was required to write down an amount equal to $11.3 million.

According to Carol Houle, the chief financial officer of its parent firm Provident Bancorp, “As we look on 2022, we are eager to absorb its lessons and emerge a better, stronger bank.” The business’s decision to discontinue providing these sorts of loans was likely strongly influenced by the losses. In spite of the losses we incurred in 2022, we start 2023 in a strong financial position and with a diverse clientele.

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The Wormhole hack: hacker shifts $155 million

According to transaction data, the hacker who was responsible for the $321 million Wormhole bridge breach has moved a substantial portion of the stolen cash. On January 23, the hacker transferred $155 million worth of Ether (ETH) to a decentralised exchange (DEX).

The Wormhole hack was the third greatest cryptocurrency theft in 2022. This occurred after an issue was discovered on February 2 in the protocol’s token bridge. This attack led to the theft of 120,000 Wrapped ETH (wETH), which had a total value of around $321 million.

According to the transaction history of the alleged wallet address used by the hacker, the most recent activity shows that 95,630 ETH was sent to the OpenOcean DEX and then subsequently converted into ETH-pegged assets such as Lido Finance’s staked ETH (stETH) and wrapped staked ETH. This information was gleaned from the blockchain transaction history of the alleged wallet address used by the hacker.

After doing more research into the transaction history, members of the cryptocurrency community such as Spreekaway discovered that the hacker went on to carry out a number of transactions that seemed to be strange.

For instance, the hacker utilised their holdings of stETH as collateral to borrow 13 million worth of the DAI stablecoin, which they then exchanged for more stETH, wrapped in more stETH, and then used to borrow some more DAI.

Notably, the Wormhole team has taken use of the chance to once again give the hacker a reward of $10 million if they return all of the cash. An encoded message in a transaction communicates this information to the hacker.

According to statistics provided by Dune Analytics, the substantial amount of ETH that was transacted by the hacker seems to have had a direct effect on the price of stETH.

The price of the asset began the day slightly below its peg of 0.9962 ETH on January 23, and it reached a high of 1.0002 ETH the next day before falling back to its previous level of 0.9981 ETH at the time of this writing.

Blockchain security companies such as Ancilia Inc. issued a warning on January 19 that searching the keywords “Wormhole Bridge” in Google currently shows promoted ad websites that are actually phishing operations. This is likely to attract more attention to the Wormhole hack in light of the most recent incident.

The community has been cautioned to use extreme caution on the content of the links they click on in relation to this phrase.

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Hashstack launches Open protocol testnet, offering under-collateralized loans

The DeFi lending and borrowing market has grown significantly in volume as new lending protocols continue to attract capital and NFT-backed loans become more popular. According to Dune Analytics, the top three platforms in terms of market capitalization are Aave, Maker,  and Compound. These platforms, however, still are facing issues when it comes to collateral requirements and volatile digital assets.

Hashstack Finance is a DeFi platform whose crypto-native lending protocol, called Open, is trying to provide a solution to collateral requirements, specifically the over-collateralization of loans. Hashstack announced on Monday the release of its closed beta testnet that enables the opposite: autonomous under-collateralized loans. Built on the Harmony blockchain, Hashstack’s Open protocol claims to let borrows take out a loan with an up to 1:3 collateral-to-loan ratio. 

According to the company, this means a person can borrow up to $300 by providing only $100 as collateral. Of this, he or she can withdraw 70% collateral, or $70 in this case, while utilizing $230 as in-platform trading capital. Hashstack claimed that DeFi lending tends to be over collateralized and, on average, a borrower provides a minimum of 42% excess collateral against the loan they intend to borrow.

Vinay, Hashstack Finance founder explained, “Today, if you want to borrow $100 on Compound, or Aave, or even MakerDAO, you are required to provide a collateral of at least $142. This breaks the primary intent behind loan procurement, and has restrictive use-cases for the borrower.”

Related: Genesis issues $6M NFT-backed loan to Meta4 Capital

Hashstack can be integrated with other DeFi solutions, such as Pancakeswap, to facilitate in-app market swaps and to improve loan utilization, as stated by the company. This mechanism allows borrowers to swap the borrowed tokens into other primary coins or secondary coins without the need to switch the dApp. Open protocol also bridges assets from other chains such as Ethereum and Avalanche C-chain.

Hashstack’s Open protocol was one of the many approved proposals from Harmony’s $300 million Ecosystem Fund announced at the end of 2021. 

Related: What is Harmony (ONE) blockchain and why it is getting so much traction?

Recently, Li Jiang, chief operating officer at Harmony, told Cointelegraph that he believes that “the future is multichain and cross-chain” and the ability to move assets very easily from one chain to another is the key towards mainstream adoption.