I have seen many borrower have collateral in Alt for a certain amount of loan in BTC. I dont understand, why do they take loan at all? I mean, with so many exchanges around, is it difficult to convert an Alt to BTC, that you may need in near future? Please pardon my ignorance in this regard.
I pondered this question when first visiting this board. As @shasan stated, it is most usually for users who do not want to sell the alt/token they are holdings. By taking BTC, they are able to use it on a much wider range of options
while keeping their altcoin investment active. This allows the borrower to use their BTC value as normal, and still potentially collect a profit from their altcoin holdings after the loan is repaid.
An example where 1 ETH = 0.05BTC
John holds 20ETH, in which he is confident of the value growing in the coming 3 months.
John wants to continue trading, without liquidating his ETH.
John borrows 1 BTC for 3 months, by giving his 20ETH as collateral
John is able to continue using his BTC, whether it be for spending, trading etc, while keeping his 20ETH investment untouched
3 months pass and ETH is now worth 0.1BTC.John repays the 1BTC to the lender to collect his 20ETH back.
John was able to use his 1BTC as usual for the period of 3 months while keeping his 20ETH investment active, which by the time he repaid his loan, was worth 2BTC.
If John did not get a collateral loan, he would have been forced to either liquidate the investment or put his day-to-day BTC spending on hold to keep his investment untouched.
