The Ordinals and Runes space, while offering exciting opportunities, can also be volatile. This article explores a strategy that leverages borrowing on Liquidium to potentially mitigate downside risk in your Ordinals or Runes holdings.
1. Example Scenario
Let's illustrate with an example:
You purchase an Ordinal for 0.3 BTC.
You are concerned about a potential price drop.
Using Liquidium, you borrow 0.28 BTC against this Ordinal as collateral.
Now, consider two outcomes:
Scenario A: Price Falls
The Ordinal's value drops to 0.20 BTC.
If you had held the Ordinal without borrowing, your loss would be 0.10 BTC (0.3 BTC - 0.20 BTC).
However, by borrowing, you can choose to default on the loan. You lose the Ordinal (worth 0.20 BTC), but you keep the 0.28 BTC you borrowed.
Scenario B: Price Stays the Same or Rises
The Ordinal's value remains at 0.3 BTC or increases.
You repay the 0.28 BTC loan (plus interest) to retain ownership of your Ordinal.
You participate in any price appreciation.
2. Borrowing as a "Put Option"
This strategy bears a resemblance to "buying a put option" in traditional finance.
What is a Put Option?
A put option gives the option buyer the right, but not the obligation, to sell an asset at a specific price (the strike price) within a specific timeframe. It's used to protect against price declines.
Actually, borrowing on Liquidium can also be seen as “buying a put option”.
Classical Put Option | Liquidium Borrow-Against-NFT |
Pay an option premium | Pay interest on the loan (economic equivalent of the premium) |
Gain the right, not the obligation, to sell the asset at the strike price | Gain the right, but not the obligation, to walk away and let Liquidium keep the collateral if floor prices crash |
If the asset drops below the strike, exercise the put and limit further losses | If the Ordinals/Runes value falls below the loan value, simply default: you lose the asset but keep the borrowed BTC |
If the asset rises, allow the option to expire; total cost = premium | If the Ordinals/Runes value holds or rises, repay principal + interest and reclaim the asset; upside preserve |
This strategy aims to secure a profit from a falling price while keeping the Ordinal. However, it's important to consider the risks, such as the price not falling as expected or fluctuating market conditions.
Disclaimer: This article does not constitute financial advice, and we strongly recommend conducting your own research and consulting with a professional financial advisor before making any investment decisions. We are not liable for any potential losses incurred from applying the strategies discussed. Proceed with caution and at your own risk.