Chinese 'big three' exchange Huobi is bringing margin trading and interest accounts to bitcoin, in a bold and possibly industry-first move designed to make more 'traditional' financial products available to serious digital currency traders.
The company's new platform, BitVC, is a Hong Kong-listed subsidiary company with a margin trading platform for both bitcoin and litecoin. Users may borrow up to 200% of the net value of all assets in their accounts; that is, BTC, LTC, CNY values combined.
To accompany the move, Huobi is launching another new brand called Yubibao to work in conjunction with BitVC. Yubibao is a novel addition and a rare thing in the bitcoin world: a savings account that provides users with daily interest payments.
The idea is that BitVC users deposit funds into their Yubibao accounts, where those balances are made available for traders to borrow. Deposits and withdrawals can be made instantly.
Platforms like Bitfinex offer person-to-person lending for similar purposes, but users must wait in a queue of loan offers.
Yubibao's system pools the resources available for lending for anyone to dip into; the advantage for lenders being that they can start receiving interest immediately.
Users can also deposit money into a Yubibao account and not think about it, rather than having to monitor operations and issue new loans. The current daily interest rate is hovering around the 0.02-03% mark.
Huobi's Robert Kuhne said Yubibao functions more like a traditional bank account, which would appeal more to users looking to generate a passive return on their investment.
It is also safe for investors, he said:
"Users do not bear any risk of loss in leveraged transactions because the BitVC system manages the loans to borrowers and automatically issues margin calls when necessary to ensure that the borrower's assets can cover the loans."
BitVC actually guarantees all user funds deposited in Yubibao, saying it holds a large reserve of bitcoins ready to backstop any losses from leveraged transactions. Furthermore, the company will bear all liquidity risk.
Kuhne added that there were plans for a comprehensive future audit of BitVC's finances and security by an external third party.
Margin trading is just BitVC's first feature, and there are plans to support various digital currency derivatives and other "innovative financial products", all based on Huobi's API.
BitVC is currently an invitation-only beta, but is scheduled to open up for public registration at the end of July. Interested users can request an invitation via Huobi's official accounts on either twitter or reddit.
Under an unofficial 'agreement' with the authorities, Chinese exchanges are not allowed to engage in speculation or otherwise risky investment behaviour.
For this reason, Huobi itself will remain registered in China and will continue to operate as a "standard BTC/LTC spot trading exchange".
Hong Kong-registered BitVC will be the more financially adventurous platform, and is intended to have a more international customer base.
Far from folding in the face of government pressure as many predicted, major Chinese exchanges have increased efforts to look for overseas customers and investigate new areas of digital currency development.
Huobi indicates it is more than satisfied with its growth over the past year, despite the tribulations. In fact, its cumulative volumes since 1st September 2013 stand at 16.6m BTC – more than any other exchange in the world, according to Bitcoinity.
The company also recently received investment from ZhenFund, a Chinese seed fund that works in collaboration with Sequoia Capital China.
Images courtesy Huobi