- Lava claims to have saved users millions in interest by refinancing Bitcoin-backed loans at rates as low as 7% annually.
- Strike founder Jack Mallers disputes Lava’s claim, showing effective annual interest rates for Lava loans could exceed 35% after one month.
- Lava lacks money transmitter licenses (MTLs) in any U.S. state, unlike Strike, which holds multiple licenses.
- Lava offers a 5% promotional rate for two weeks, then 7% post-promotion plus a 2% capital charge, resulting in much higher annualized rates than advertised.
- Lava has not clarified how its users have saved millions when effective interest rates appear significantly above its stated goal of 7% all-in annual rates.
Lava, a company offering Bitcoin (BTC)-backed loans, recently announced it saved users “millions in interest costs” by refinancing loans at interest rates as low as “7% all-in for a full year.” This claim sparked criticism and questions about the accuracy of its advertised rates.
Jack Mallers, founder of Strike, a competing BTC-backed lender, challenged Lava’s claim by comparing their loan interest rates. He noted that Lava’s effective annual percentage rate (APR) after one month could reach 35.2%, far above the 7% annualized rate Lava aims for. In contrast, Strike offers an effective APR of about 10% at the same point.
According to Mallers, Lava is not a regulated financial institution and holds no money transmitter licenses (MTLs) in any U.S. state. This contrasts with Strike, which holds multiple MTLs and complies with regulations. Mallers questioned the legality of Lava’s operations and called for clarity on their actual pricing.
The structure of Lava’s lending rates includes a 5% promotional rate for the first two weeks, followed by a 7% rate plus an additional 2% capital charge. When annualized, this combination leads to an effective interest rate of 35.2% after one month, which conflicts with the company’s public statement about aiming for a 7% all-in rate. Mallers calculated that for a loan of $750,000 backed by BTC, the interest rate would only drop below Strike’s 10% rate after nine months of holding.
Lava founder Shehzan Maredia has not provided a clear explanation for the discrepancy between the company’s advertised rates and the effective rates calculated by critics. Despite repeated requests, Lava has not clarified how users have managed to save millions in interest costs within weeks given the high effective APR.
The debate is ongoing on social media, with many asking for a response from Lava regarding the difference between the promoted 7% annual rate and the higher actual rates users face. Lava has so far maintained its position without adjusting its guidance. Protos has reached out to Lava for comment and will update the report upon receiving a response.
For further details, see the original claims on Lava’s Twitter post and Jack Mallers’ analysis on his Twitter thread. Information on Strike‘s regulatory licenses is available on their legal page.
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