Use Cases for Ordinal-Backed Loans

Several important use cases emerge when Ordinals can be used as collateral:

1. The borrower gains access to liquidity without selling their Ordinal

Access to liquidity without selling the asset is desirable for at least two key reasons:

• Appreciation Expectation: The Borrower wants to keep the asset expecting it to increase in value over time.
• Tax considerations: In some cases borrowers might trigger taxable events when selling assets. Consult with your tax advisor to evaluate whether this applies to you.

2. The borrower can hedge against Ordinal price decline

The Borrower can purchase “insurance” for their Ordinal’s price decline:

• If the price drops below the loan amount, the borrower can strategically default.
• If the price doesn’t drop, the borrower repays the loan and retains the Ordinal.

3. Yield Generation for the lender

The lender benefits from:

• Interest Income: Earn Bitcoin by taking on lending risk.
• Acquisition Opportunity: Potential to acquire desirable Ordinals at a discount if the borrower defaults.