Gap insurance covers negative equity in the collateral in the event of damage to the collateral. Bitcoin as a commodity is different collateral than these types of loan products. I guess you could have insurance against the collateral being lost/stolen, but it would likely be unnecessary with multiparty custody via escrow contract
Discussion
Got it. I don't know the solution to #2. For #1, Lava apparently offers loans against self custody BTC at a reasonable rate. If someone is ok with custodial, might as well also consider just holding some BTC ETF's and borrowing against that from a large brokerage house- their rates can range from 6%-13%.
Yeah, I would never justify owning the ETFs just to access liquidity. I know there are bitcoin holders that will want dollar loans to buy things, but won’t want to pay in the teens for interest rates tied to liquidation risk. Where there’s demand, there’s a product. We’ll see how it shakes out