Anyone using crypto exchanges to earn higher interest on their cash?

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tman9999
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Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

I've been researching crypto exchanges and lending for a few months now. While Bitcoin and various scams and hacks associated with it get all the press, there is a lot of other activity in digital currency world that has not gotten nearly as much media coverage. These exchanges are fast.

Not sure how many people outside the crypto community realize that there are crypto coins known generically as "stablecoins". These coins are pegged to a currency and designed to stay equal to the value of that currency regardless of what is happening in financial or crypto markets.

You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility. https://bitcompare.net/platforms/blockfi/savings-rates

Just wondering if any bogleheads have investigated digital asset savings or lending as a way to increase return without volatility.
Doctor Rhythm
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Doctor Rhythm »

You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility.
Does this statement comport with your fundamental beliefs about risks versus returns?
btc228
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by btc228 »

The drive for yield has me looking at this stuff too, but I've been skeptical about the security. Although the currency risk is low with stable coins, I'm not sure about the stability of these lending networks (financially, legally, hacks).
fabdog
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by fabdog »

Ah, the stablecoins... backed by equivalent USD deposits... wasn't that what Tether was pitching? Didn't they finally have to admit they had nothing like the USD they claimed to have?

8% interest, no volatility... what is the underlying economic transaction that you believe makes this result possible? Sounds like the opening lines for an "American Greed" episode

Mike
qwerty123
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by qwerty123 »

fabdog wrote: Fri Aug 07, 2020 2:33 pm Ah, the stablecoins... backed by equivalent USD deposits... wasn't that what Tether was pitching? Didn't they finally have to admit they had nothing like the USD they claimed to have?

8% interest, no volatility... what is the underlying economic transaction that you believe makes this result possible? Sounds like the opening lines for an "American Greed" episode

Mike
You're definitely right to be skeptical - if you are to go this route, I recommend USDC since it's backed by 2 US based companies (Coinbase and Circle), and I believe they complete regular audits. That said, you're definitely taking on more risk than regular bond funds or FDIC deposit accounts. I would make sure to read up on the company you are depositing with, and realize that you could lose all of your funds. It's up to you if the upside (8%) is worth the risk of total loss.

Alternatively, if you are comfortable with how Ethereum works, and how some of the related defi systems work, I recommend researching the term "yield farming". There are a number of platforms that are giving away tokens (that can be sold for cash) in return for depositing funds with their smart contracts. These returns can be as high as 40% if done correctly (which I realize sounds insane, and hence you should be highly skeptical). There's a risk of loss due to smart contract bugs + a market risk, but I've personally decided the upside is worth the potential downside (with a small portion of my total funds).

I'm not going to say any more because you should have a *very* good idea of what you are getting into before you invest any money.
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tman9999
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

Doctor Rhythm wrote: Fri Aug 07, 2020 2:28 pm
You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility.
Does this statement comport with your fundamental beliefs about risks versus returns?
Actually, it doesn't dis-comport with it...

If you look at lending rates on term loans for small businesses, or even bank loans, they range anywhere from 4-13%. These crypto lending platforms are potential disruptors due to low overheads, and 100+% collateralization. The defi (decentralized finance) platforms operate leaner than the centralized ones, run everything entirely on the blockchain, and are non-custodial (you keep control of your assets).

It's an entirely different business model for banking.

So who needs crypto loans? Well, if you're a miner, you might have a bunch of money tied up in, say, Bitcoin, that you mined when BTC was trading at $5,000. Now BTC is trading at nearly $12000, and you need funds to buy server capacity and pay bills. If you liquidate some bitcoin that will trigger a taxable event due to capital gains. If you borrow against that BTC, though, you pay 9% interest to a defi lending platform. The platform pays its borrower 8%, and keeps 1%, which is plenty to cover their operating costs and a little profit.

"Yeah, but what if BTC takes a dump? What happens to the lender's funds that are on loan to a borrower whose collateral is now under water?" This is where over-collateralization and automatic loan liquidation triggers come into play. The loan is collateralized to a level considered safe based on the coin and its trading history - say 140%. So the borrower has to put up 140% in collateral in order to get 100% of the loan value they're looking for. Then, if the value of their collateral drops below a pre-set trigger level (say, 110% of the loan value), a liquidation event is automatically triggered, paying out the loan from the collateral, and returning whatever is left back to the borrower.

Risks:
1. flash crash: high volatility causes an almost-instantaneous drop in value of the collateral coin, blowing right through the collateral buffer before the trigger can react.
2. hack: someone hacks the Ethereum blockchain or the platform the loans are on.

Others?
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by jarjarM »

3. The platform is a fraud. It happens once in a while with crypto. It happens once in a while with real company too
typical.investor
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Fri Aug 07, 2020 2:00 pm
Not sure how many people outside the crypto community realize that there are crypto coins known generically as "stablecoins". These coins are pegged to a currency and designed to stay equal to the value of that currency regardless of what is happening in financial or crypto markets.
It's too difficult to ascertain the actual stability of said coins.

Take "Tether" for example. It was firmly said to be backed by USD deposits and thus pegged to the USD, and then after much acrimony finally revealed to be actually backed in large part by a basket of crypto-coins that could all decline/default together.

So yeah, pegged unless things fall apart.

It's fine I guess if it goes in your risky asset allocation the same way junk emerging bonds do. 8% yield on the stable coins is higher than what junk EM bonds pay, so should be categorized similarly I think and not considered a cash substitute by any stretch of the imagination.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by qwertyjazz »

4 It is equivalent to investing in really high risk junk bond funds - they pay well until there is correlated default of the borrowers

Even if it is completely legit and well run, it is far out on the lending risk vs return curve which may or may not be a good deal for you
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kbjeffrey
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by kbjeffrey »

I've put some money into AnchorUSD. They say they offer "upto 8%" in interest on the first $5,000 you invest. It looked reasonably reliable to me:

- https://www.anchorusd.com/
- https://www.investopedia.com/news/ibm-l ... red-banks/.

I figure that in the very worst case, I'll loose 5k. In the best case, I'll actually earn some interest on my cash. Right now I'm getting 7.88%
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones, run everything entirely on the blockchain, and are non-custodial (you keep control of your assets).
To me you are just whispering sweet nothings lacking in real meaningfulness.
tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones,
Bitcoin transactions aren't exactly cheap compared to VISA or other payments.
tman9999 wrote: Fri Aug 07, 2020 4:37 pm run everything entirely on the blockchain,
Which requires fees for the miners to cover their costs which are not trivial given the power inefficiencies.
tman9999 wrote: Fri Aug 07, 2020 4:37 pm and are non-custodial (you keep control of your assets).
Which is fantastic when you are of a conspiracy mindset. Non-custodial also means no protection or recourse. At some level of assets, FDIC and/or SIPC insurance plays a real role.

Granted, if those guarding the hen house turn out to be foxes, then yeah defi platforms might serve a roll. That said, I can't imagine a scenario where FDIC/SIPC go kaput and defi platforms remain honest in the absence of some type of central government and it's enforcement of law.

And economically speaking, if Chinese/US relations continue to sour, what happens if the majority of miners who are in China decide or are forced to act together (it's only a handful of groups that could control even the largest cryptocurrency) take control. I really don't think there is any law anywhere saying the majority of miners can't do what they want. Of course, maybe coins would fork, but then who would the new majority be?

Personally, I like tech and am excited by all things tech. The economic use case and protections are a little weak here though, and don't merit the hype generated by early adopters who want to see stupendous gains.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Doctor Rhythm »

tman9999 wrote: Fri Aug 07, 2020 4:37 pm
Doctor Rhythm wrote: Fri Aug 07, 2020 2:28 pm
You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility.
Does this statement comport with your fundamental beliefs about risks versus returns?
Actually, it doesn't dis-comport with it...
If you really believe this, then why limit this to your cash? At 8% return with no downside risk, you should sell all of your stocks and bonds and go all in. After all, the S&P 500 has historically given only slightly better returns, which most would gladly trade for absence of volatility.
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tman9999
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

Doctor Rhythm wrote: Fri Aug 07, 2020 5:19 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm
Doctor Rhythm wrote: Fri Aug 07, 2020 2:28 pm
You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility.
Does this statement comport with your fundamental beliefs about risks versus returns?
Actually, it doesn't dis-comport with it...
If you really believe this, then why limit this to your cash? At 8% return with no downside risk, you should sell all of your stocks and bonds and go all in. After all, the S&P 500 has historically given only slightly better returns, which most would gladly trade for absence of volatility.
Exactly. Which is why I posted up here for this august group to weigh in on it. Because I don’t know for sure, and I’m not convinced either. So it’s great to get all this response and input!
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones, run everything entirely on the blockchain, and are non-custodial (you keep control of your assets).
To me you are just whispering sweet nothings lacking in real meaningfulness.
Actually every one of those terms has very substantial meaning. Leaner means lower operating costs than a traditional bank, so able to pay more interest to depositors and lenders. Non-custodial (as you mention below) means lower risk, because the platform can fail or go out of business without depositors losing their money. And on the blockchain also provides a good degree of security. (And is not synonymous with Bitcoin, btw - seems like there may be some confusion there, based on a latter part of your reply.
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones,
Bitcoin transactions aren't exactly cheap compared to VISA or other payments.
Centralized/decentralized are not the same as Bitcoin - totally unrelated concepts here. Not sure what you’re basing this on anyways - what about bitcoin transactions are you thinking isn’t cheap??
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm run everything entirely on the blockchain,
Which requires fees for the miners to cover their costs which are not trivial given the power inefficiencies.
Are you thinking about Bitcoin again? Blockchain and bitcoin are not the same thing. Users of the Ethereum blockchain pay a gas fee for transacting on it, and it’s usually quite low - a few cents per transaction.
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm and are non-custodial (you keep control of your assets).
Which is fantastic when you are of a conspiracy mindset. Non-custodial also means no protection or recourse. At some level of assets, FDIC and/or SIPC insurance plays a real role.
Yes, agree on traditional banking and insurance providing a very nice security layer. And defi plays don’t have this. Which is another reason for posting up here in the first place - looking for other informed perspectives from those who have come to terms with what is currently the Wild West of banking.

With over thirty bills in Congress on various aspects of a US Central Bank Digital Currency offering, and trials in China and elsewhere going live, it seems to me like it’s only a matter of time before defi and digital currency become mainstream. Just trying to get a sense of when it might be time to get into it in a conservative way that generates some returns without taking on exorbitant levels of risk.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Northern Flicker »

tman9999 wrote:If you look at lending rates on term loans for small businesses, or even bank loans, they range anywhere from 4-13%.
So you are saying that a bank would be able to profit by paying 8% on deposits so that they can use the capital to make lower (but not non-zero) risk loans for 4% and high risk loans for 13%. How exactly does that work?
Risk is not a guarantor of return.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Fri Aug 07, 2020 6:42 pm
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones, run everything entirely on the blockchain, and are non-custodial (you keep control of your assets).
To me you are just whispering sweet nothings lacking in real meaningfulness.
Actually every one of those terms has very substantial meaning. Leaner means lower operating costs than a traditional bank, so able to pay more interest to depositors and lenders.
Ok, sure. But why would anyone borrow at higher than 8%? The borrowing rate has to be higher than that for them to pay out 8%.

It doesn't make economic sense. Loans are available for much less than that.

tman9999 wrote: Fri Aug 07, 2020 6:42 pm Non-custodial (as you mention below) means lower risk, because the platform can fail or go out of business without depositors losing their money. And on the blockchain also provides a good degree of security. (And is not synonymous with Bitcoin, btw - seems like there may be some confusion there, based on a latter part of your reply.
But does blockchain really provide security? The majority of miners make the rules. What if they decide double spending is more lucrative to them?

And when platforms/exchanges go out of business, coins go missing with them in many cases. OK, go for offline storage if you can, but making loans and getting 8% on it doesn't give you anything should the stablecoin fail.

And even if you retain the stablecoins, they will have little value if they are collateralized with worthless digital currencies.
tman9999 wrote: Fri Aug 07, 2020 6:42 pm
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm The defi (decentralized finance) platforms operate leaner than the centralized ones,
Bitcoin transactions aren't exactly cheap compared to VISA or other payments.
Centralized/decentralized are not the same as Bitcoin - totally unrelated concepts here. Not sure what you’re basing this on anyways - what about bitcoin transactions are you thinking isn’t cheap??
I've seen figures that 100,000 VISA transactions have about 1/3 the energy cost of 1 bitcoin transaction.

https://digiconomist.net/bitcoin-energy-consumption/

And so basically the story is that as coin mining is finished, the transaction cost to incentivize miners to record your transaction will just go up.

Anyway, bitcoin is just one example. Whatever decentralized platform you use, there are still going to be miners needing to cover their costs.
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm run everything entirely on the blockchain,
Which requires fees for the miners to cover their costs which are not trivial given the power inefficiencies.
tman9999 wrote: Fri Aug 07, 2020 6:42 pm Are you thinking about Bitcoin again? Blockchain and bitcoin are not the same thing. Users of the Ethereum blockchain pay a gas fee for transacting on it, and it’s usually quite low - a few cents per transaction.
OK, if you say so. This is what I see:

Ethereum transaction fees are rising too high
Both Ethereum supporters and rivals are acknowledging that fees are getting out of hand. But no clear solution is being used.


https://decrypt.co/36501/ethereum-trans ... g-too-high
typical.investor wrote: Fri Aug 07, 2020 5:09 pm
tman9999 wrote: Fri Aug 07, 2020 4:37 pm and are non-custodial (you keep control of your assets).
Which is fantastic when you are of a conspiracy mindset. Non-custodial also means no protection or recourse. At some level of assets, FDIC and/or SIPC insurance plays a real role.
tman9999 wrote: Fri Aug 07, 2020 6:42 pm Yes, agree on traditional banking and insurance providing a very nice security layer. And defi plays don’t have this. Which is another reason for posting up here in the first place - looking for other informed perspectives from those who have come to terms with what is currently the Wild West of banking.

With over thirty bills in Congress on various aspects of a US Central Bank Digital Currency offering, and trials in China and elsewhere going live, it seems to me like it’s only a matter of time before defi and digital currency become mainstream. Just trying to get a sense of when it might be time to get into it in a conservative way that generates some returns without taking on exorbitant levels of risk.
Wish I knew how it would shake out. Napster comes to mind of something pioneering that didn't really work out.

If you do invest (or perhaps more accurately "speculate"), either to get interest payments on their cash or in the coins themselves, I think it makes sense to treat it as a truly risky asset.

So if you invest $10k overall, put $5k or so into a real FDIC insured cash account (at an online bank that pays higher rates). And then put $5k into your risky asset and rebalance maybe quarterly and keep doing that just as you would with stocks. And be ready to write the whole $10k off as you might end up rebalancing into an asset that is becoming worthless, or maybe the news would lead you stop.

I don't know how it will all play out, but let's be honest -- this risks are very, very real and need to be managed.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by nisiprius »

tman9999 wrote: Fri Aug 07, 2020 2:00 pm...Not sure how many people outside the crypto community realize that there are crypto coins known generically as "stablecoins"...
I have heard about "stablecoins." The most famous, and I think the biggest of all the stablecoins is Tether. Yes, it's the biggest, ten times as big as USDC, which is the second biggest.

And it verges on being a scam. There is no way I would want to swim in those water just to "earn higher interest on my cash."

Tether (cryptocurrency)
Tether is a controversial cryptocurrency with tokens issued by Tether Limited. It formerly claimed that each token was backed by one United States dollar, but on 14 March 2019 changed the backing to include loans to affiliate companies. The Bitfinex exchange was accused by the New York Attorney General of using Tether's funds to cover up $850 million in funds missing since mid-2018.

Tether is called a stablecoin because it was originally designed to always be worth $1.00, maintaining $1.00 in reserves for each tether issued. Nevertheless, Tether Limited states that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will be redeemed or exchanged for dollars. On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents.

Tether Limited and the tether cryptocurrency are controversial because of the company's failure to provide a promised audit showing adequate reserves backing tether, its alleged role in manipulating the price of bitcoin, the unclear relationship with the Bitfinex exchange, and the company's apparent lack of a long-term banking relationship.
7/5/2020: Cryptocurrency exchange Bitfinex will have to face allegations from New York State that it hid millions in lost funds
New York prosecutors alleged in April 2019 that Bitfinex lost $850 million in client and corporate funds, and then used money from affiliated stablecoin Tether to cover the loss.
Last edited by nisiprius on Fri Aug 07, 2020 7:59 pm, edited 2 times in total.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by 000 »

Why would I want USD-linked crypto? Isn't the whole point currency diversification??
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Cycle »

tman9999 wrote: Fri Aug 07, 2020 2:00 pm You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by CorradoJr »

kbjeffrey wrote: Fri Aug 07, 2020 5:09 pm I've put some money into AnchorUSD. They say they offer "upto 8%" in interest on the first $5,000 you invest. It looked reasonably reliable to me:

- https://www.anchorusd.com/
- https://www.investopedia.com/news/ibm-l ... red-banks/.

I figure that in the very worst case, I'll loose 5k. In the best case, I'll actually earn some interest on my cash. Right now I'm getting 7.88%
I’m going to give this a try with $100-200, although my risk tolerance is much lower. I’ll see how it goes for a few weeks.

Anchor claims to accrue interest daily, it’s currently at 7.83%.

I would think USDC would be the way to go in an attempt to limit any price fluctuations, I’m very new to Crypto but learning.

I also opened a Coinbase account recently and have viewed some of the videos to score some free “alt-coins“ then converted them to about $40 worth of Bitcoin. If its totally free, why not?
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Pu239 »

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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Anon9001 »

You should be very cautious with this. I recommend investing in EM USD bonds over doing this. There should be no reason they should give you high interest rates on USD other than the fact that they are lending money to very risky people.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by RobLyons »

I would avoid at all costs.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Maverick3320 »

tman9999 wrote: Fri Aug 07, 2020 2:00 pm I've been researching crypto exchanges and lending for a few months now. While Bitcoin and various scams and hacks associated with it get all the press, there is a lot of other activity in digital currency world that has not gotten nearly as much media coverage. These exchanges are fast.

Not sure how many people outside the crypto community realize that there are crypto coins known generically as "stablecoins". These coins are pegged to a currency and designed to stay equal to the value of that currency regardless of what is happening in financial or crypto markets.

You could earn over 8% interest on a US Dollar Coin (USDC) deposit, compounded monthly without volatility. https://bitcompare.net/platforms/blockfi/savings-rates

Just wondering if any bogleheads have investigated digital asset savings or lending as a way to increase return without volatility.
8% interest with no volatility - sounds amazing!
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Maverick3320 »

kbjeffrey wrote: Fri Aug 07, 2020 5:09 pm I've put some money into AnchorUSD. They say they offer "upto 8%" in interest on the first $5,000 you invest. It looked reasonably reliable to me:

- https://www.anchorusd.com/
- https://www.investopedia.com/news/ibm-l ... red-banks/.

I figure that in the very worst case, I'll loose 5k. In the best case, I'll actually earn some interest on my cash. Right now I'm getting 7.88%
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by spectec »

If you're tempted to dabble in virtual currency, be sure to check the box on your income tax return that says you're doing this. It is a required entry even if you aren't required to include Schedule B on the return. Now you may tell yourself checking that box won't increase your audit potential, and there's no proof either way because the question is so new, but all I can say is the IRS requires that information for a reason.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Actin »

I was more interested in crypto before it became a consensual Ponzi. Every single erc20 token is a scam.

Certain cryptos are treated like a cult and get very defensive if you point out why it's too good to be true or useless. I think most of them are paid shills and the rest are useful idiots.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

Well it’s certainly an interesting topic to me; and this thread has produced a few new aspects of it to consider and investigate. The naysaying isn’t particularly helpful - the “if it’s too good to be true” comments don’t add anything. The most striking thing to me about the comments here is that it looks like only one commenter has any real direct experience in putting their money into some type of digital asset.

Then again, I guess that isn’t surprising. To the 3-fund/4-fund b’heads I imagine crypto yield farming makes individual stock picking look like a solid long-term strategy to wealth building.

I have $100 placements in two different stablecoins and a couple of different wallets. I want to believe! And I’m as skeptical as anyone else about how legit this stuff really is. I’m going to continue to investigate it. Happy to post up any new learnings, observations, insights - good or bad.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by StormShadow »

tman9999 wrote: Fri Aug 07, 2020 2:00 pm Anyone using crypto exchanges to earn higher interest on their cash?
Not a chance. :oops:
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by NewMoneyMustBeSmart »

fabdog wrote: Fri Aug 07, 2020 2:33 pm
You're definitely right to be skeptical - if you are to go this route, I recommend USDC since it's backed by 2 US based companies (Coinbase and Circle), and I believe they complete regular audits.
I neither support or denigrate this option of investing in cryptocurrency to gain interest.

I was intrigued by your tentative statement that you "believe they complete regular audits" so I did a bit of basic research.

The SEC edgar filings seem to list their annual audit report here:

https://sec.report/Document/9999999997-20-002119/

What they audit, how it is audited, and the results of the audit are unclear to me as I haven't researched more in depth.
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qwerty123
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Joined: Thu Jun 26, 2014 7:44 pm

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by qwerty123 »

NewMoneyMustBeSmart wrote: Sat Aug 08, 2020 11:29 am
fabdog wrote: Fri Aug 07, 2020 2:33 pm
You're definitely right to be skeptical - if you are to go this route, I recommend USDC since it's backed by 2 US based companies (Coinbase and Circle), and I believe they complete regular audits.
I neither support or denigrate this option of investing in cryptocurrency to gain interest.

I was intrigued by your tentative statement that you "believe they complete regular audits" so I did a bit of basic research.

The SEC edgar filings seem to list their annual audit report here:

https://sec.report/Document/9999999997-20-002119/

What they audit, how it is audited, and the results of the audit are unclear to me as I haven't researched more in depth.
https://www.centre.io/usdc-transparency - it looks like they are audited monthly to verify that USD held in their custody exceeds outstanding USDC tokens. Looking [here](https://www.coinmarketcap.com/currencies/usd-coin/), the reported market cap on coinmarketcap on June 30th was $927M, which the audit report shows $985M vs in coins with $990M in cash. Aka, if we can believe the audit report, they do have the assets backing it as of June 30th.
Topic Author
tman9999
Posts: 71
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

This article in Forbes does a nice job on this topic:
”Why Ethereum Has Value - The Opportunity In Programmable Money & ‘DeFi’”
hillstonekr
Posts: 2
Joined: Sat Jul 04, 2020 10:41 pm

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by hillstonekr »

yup have some funds in blockfi.com for 8.6% APY. done my research and been around the crypto industry since 2015. seen a lot of scams and hacks.

blockfi is very credible in the industry and has a lot of well known backers: fidelity, peter thiel, winklevoss twins, and several other names in crypto that have a good reputation.

the industry is new so i see a lot of distrust here on the boglehead forums. totally understandable. would not put all my money in there but with a guaranteed rate of 8.6%, i'm more than happy putting a portion in.
typical.investor
Posts: 2289
Joined: Mon Jun 11, 2018 3:17 am

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

hillstonekr wrote: Sun Aug 09, 2020 1:34 am yup have some funds in blockfi.com for 8.6% APY. done my research and been around the crypto industry since 2015. seen a lot of scams and hacks.

blockfi is very credible in the industry and has a lot of well known backers: fidelity, peter thiel, winklevoss twins, and several other names in crypto that have a good reputation.

the industry is new so i see a lot of distrust here on the boglehead forums. totally understandable. would not put all my money in there but with a guaranteed rate of 8.6%, i'm more than happy putting a portion in.
Who is borrowing at greater than 8%? Crypto speculators?

And what happens if cryptos don’t go up more than that?

You try to get out quick before borrowers default?

And in what sense is it guaranteed?
BlueRidgePro
Posts: 45
Joined: Fri Mar 09, 2012 1:49 pm

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by BlueRidgePro »

If it looks too good, it's a fraud. If it were for real, everyone would be using it. Lots of smart firms and people looking at returns.

Fraudsters prey on people who are greedy and think they've found extraordinary returns.

Return on cash only varies a few basis points from one vehicle to another. Hardly worth the effort to chase. Certainly not worth any risk.
Swivelguy
Posts: 426
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Swivelguy »

Cryptocurrency is an ecological disaster (bitcoin consumes more electricity than Switzerland), so I feel it is not ethical to participate in or support it.
Topic Author
tman9999
Posts: 71
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

typical.investor wrote: Sun Aug 09, 2020 3:23 am Who is borrowing at greater than 8%? Crypto speculators?

And what happens if cryptos don’t go up more than that?

You try to get out quick before borrowers default?

And in what sense is it guaranteed?
Miners and VC’s that back crypto startups with large positions in cryptos like bitcoin may have large unrealized cap gains. What they don’t have is liquidity. So DeFi lending is a way for them to gain access to funds they can use to pay bills (miners) or stake new investments (VC’s). To do it, they use DeFi lending exchanges (DEX) to set up and take out loans that are established in a smart contract on the blockchain. These are 100% collateralized loans - if you want to borrow $10,000, you’ll need to put up, say, $15,000 in collateral if your assets are in a coin like bitcoin that fluctuates a lot. The smart contract is just that - it has a built-in liquidation trigger that cashes out the loan if the value of the collateral gets to within some pre-set percentage of the outstanding loan balance.

This is the design principal that is set up to ensure borrowers don’t (can’t) default.

Why don’t people know about this? Because this is stuff is brand new. Regulators haven’t even started to catch up. Look at the graph showing the total locked value (TLV) in defi lending. It was only several hundred million dollars at the beginning of 2020. It eclipsed one billion in February, and then grew slowly for a few months. And then in June/July, it quadrupled. (You can see this for yourself on http://www.defipulse.com).

So is the nascent world of defi risky? Yes.
Is it worth keeping an eye on? Absolutely!
”The Great Potential Of Decentralized Finance in 2020”

Another related datapoint is regarding the rise of Central Bank Digital Currencies (CBDC). Imagine if everyone had a digital wallet on their smartphone containing their country’s official digital currency. If that were the case in 2020 here in the US, for instance, when the Fed was scrambling to process PPP claims and print and disburse millions of checks, the process would’ve been streamlined immensely, saving a huge amount of time and an enormous amount of expense. Not to mention a huge reduction in fraud. Congress has already started to evaluate CBDC options. This pandemic will accelerate that. And that will drive greater awareness and acceptance among the general public; and will speed up the regulatory side of things.

Meanwhile it’s the Wild West out there, no doubt. But for how long? I’d like to be ready to take some yield away from the banks and pocket it myself when the time comes and the risks are mostly mitigated.
runner540
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by runner540 »

tman9999 wrote: Sun Aug 09, 2020 10:09 am
typical.investor wrote: Sun Aug 09, 2020 3:23 am Who is borrowing at greater than 8%? Crypto speculators?

And what happens if cryptos don’t go up more than that?

You try to get out quick before borrowers default?

And in what sense is it guaranteed?
Miners and VC’s that back crypto startups with large positions in cryptos like bitcoin may have large unrealized cap gains. What they don’t have is liquidity. So DeFi lending is a way for them to gain access to funds they can use to pay bills (miners) or stake new investments (VC’s). To do it, they use DeFi lending exchanges (DEX) to set up and take out loans that are established in a smart contract on the blockchain. These are 100% collateralized loans - if you want to borrow $10,000, you’ll need to put up, say, $15,000 in collateral if your assets are in a coin like bitcoin that fluctuates a lot. The smart contract is just that - it has a built-in liquidation trigger that cashes out the loan if the value of the collateral gets to within some pre-set percentage of the outstanding loan balance.

This is the design principal that is set up to ensure borrowers don’t (can’t) default.

Why don’t people know about this? Because this is stuff is brand new. Regulators haven’t even started to catch up. Look at the graph showing the total locked value (TLV) in defi lending. It was only several hundred million dollars at the beginning of 2020. It eclipsed one billion in February, and then grew slowly for a few months. And then in June/July, it quadrupled. (You can see this for yourself on http://www.defipulse.com).

So is the nascent world of defi risky? Yes.
Is it worth keeping an eye on? Absolutely!
”The Great Potential Of Decentralized Finance in 2020”

Another related datapoint is regarding the rise of Central Bank Digital Currencies (CBDC). Imagine if everyone had a digital wallet on their smartphone containing their country’s official digital currency. If that were the case in 2020 here in the US, for instance, when the Fed was scrambling to process PPP claims and print and disburse millions of checks, the process would’ve been streamlined immensely, saving a huge amount of time and an enormous amount of expense. Not to mention a huge reduction in fraud. Congress has already started to evaluate CBDC options. This pandemic will accelerate that. And that will drive greater awareness and acceptance among the general public; and will speed up the regulatory side of things.

Meanwhile it’s the Wild West out there, no doubt. But for how long? I’d like to be ready to take some yield away from the banks and pocket it myself when the time comes and the risks are mostly mitigated.
How do you know you’re not helping terrorists and drug cartels obtain “liquidity”?
Topic Author
tman9999
Posts: 71
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

runner540 wrote: Sun Aug 09, 2020 11:05 am How do you know you’re not helping terrorists and drug cartels obtain “liquidity”?
Good question. This is where the regulatory environment is still playing catch up. KYC (know your customer) and AML (anti-money laundering) rules are still evolving in the digital asset realm. OTOH, transactions on the blockchain are by nature public. And identities are not anonymous - pseudonyms are used.

There are workarounds that criminals can use to get around some of these, but on the face of it, you have to wonder why a criminal enterprise would want to transact on a platform where every transaction is permanently recorded, unchangeable, and visible to anyone who wants to look.

Just read up a bit more on it in this article in cointelegraph.com here: ”Comparing Money Laundering With Cryptocurrencies and Fiat”.
Thanks.
typical.investor
Posts: 2289
Joined: Mon Jun 11, 2018 3:17 am

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Sun Aug 09, 2020 10:09 am
typical.investor wrote: Sun Aug 09, 2020 3:23 am Who is borrowing at greater than 8%? Crypto speculators?

And what happens if cryptos don’t go up more than that?

You try to get out quick before borrowers default?

And in what sense is it guaranteed?
Miners and VC’s that back crypto startups with large positions in cryptos like bitcoin may have large unrealized cap gains. What they don’t have is liquidity. So DeFi lending is a way for them to gain access to funds they can use to pay bills (miners) or stake new investments (VC’s). To do it, they use DeFi lending exchanges (DEX) to set up and take out loans that are established in a smart contract on the blockchain. These are 100% collateralized loans - if you want to borrow $10,000, you’ll need to put up, say, $15,000 in collateral if your assets are in a coin like bitcoin that fluctuates a lot. The smart contract is just that - it has a built-in liquidation trigger that cashes out the loan if the value of the collateral gets to within some pre-set percentage of the outstanding loan balance.

This is the design principal that is set up to ensure borrowers don’t (can’t) default.

Why don’t people know about this? Because this is stuff is brand new.
To suggest borrowers (doing so at greater than 8%) can't default is pie-in-the-sky and misleading hyperbole that a prudent and educated investor should pick up immediately. I see the hype setting is on full here.

I see little difference between this newly fangled and wondrous DeFi lending being hyped here and the Monday 1987 crash which was caused by the very liquidation triggers that you say will save DeFi.

In fact, I suspect that many in the industry know and plan for this and likely have their own custom contracts set up to liquidate earlier in a crash scenario where the liquidation starts to cause further liquidation.

We are talking about loans to invest in crypto which are collateralized by crypto and the claim you state that they are guaranteed and can't default. What I am saying is that no many how many times you make a false claim using whatever seductive language you choose, it will never be true. Actually, Facebook might be a better platform for your disinformation.

tman9999 wrote: Sun Aug 09, 2020 10:09 am Regulators haven’t even started to catch up. Look at the graph showing the total locked value (TLV) in defi lending. It was only several hundred million dollars at the beginning of 2020. It eclipsed one billion in February, and then grew slowly for a few months. And then in June/July, it quadrupled. (You can see this for yourself on http://www.defipulse.com).

So is the nascent world of defi risky? Yes.
Is it worth keeping an eye on? Absolutely!
”The Great Potential Of Decentralized Finance in 2020”

Another related datapoint is regarding the rise of Central Bank Digital Currencies (CBDC). Imagine if everyone had a digital wallet on their smartphone containing their country’s official digital currency. If that were the case in 2020 here in the US, for instance, when the Fed was scrambling to process PPP claims and print and disburse millions of checks, the process would’ve been streamlined immensely, saving a huge amount of time and an enormous amount of expense. Not to mention a huge reduction in fraud. Congress has already started to evaluate CBDC options. This pandemic will accelerate that. And that will drive greater awareness and acceptance among the general public; and will speed up the regulatory side of things.

Meanwhile it’s the Wild West out there, no doubt. But for how long? I’d like to be ready to take some yield away from the banks and pocket it myself when the time comes and the risks are mostly mitigated.
Wow, crytpo cures coronavirus too and magically can determine who is eligible for PPP. So you are saying DeFi is going to track how many employees a business actually has so as to be able to effectively make an eligibility determination. What else will it track and how?
Last edited by typical.investor on Sun Aug 09, 2020 8:43 pm, edited 1 time in total.
Impatience
Posts: 174
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by Impatience »

tman9999 wrote: Sun Aug 09, 2020 10:09 am This is the design principal that is set up to ensure borrowers don’t (can’t) default.

Why don’t people know about this? Because this is stuff is brand new.
Absolutely wrong. None of this is new. Crypto has been reinventing the world of modern finance, as it already existed, in an accelerated state since about 2010. Every hard lesson learned they have relearned and are still doing so. Blockchain technology is nothing more than a nifty new way of distributing ledgers, it doesn’t change fundamentals no matter how hard you try to make it sound like it does.
Topic Author
tman9999
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

typical.investor wrote: Sun Aug 09, 2020 7:43 pm Actually, Facebook might be a better platform for your disinformation.

Wow, crytpo cures coronavirus too and magically can determine who is eligible for PPP. So you are saying DeFi is going to track how many employees a business actually has so as to be able to effectively make an eligibility determination. What else will it track and how?
Why the snark? I’m sharing what I understand about it, and asking for input, which you and a few others have been nice enough to provide plenty of. I accept I don’t have all the answers - ergo my post in the first place. If I did I wouldn’t be asking this group. Sheesh. (And btw, as far as I know nothing I’ve offered would be in the realm of disinformation. Some holes? Maybe.
typical.investor
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Sun Aug 09, 2020 9:05 pm
typical.investor wrote: Sun Aug 09, 2020 7:43 pm Actually, Facebook might be a better platform for your disinformation.

Wow, crytpo cures coronavirus too and magically can determine who is eligible for PPP. So you are saying DeFi is going to track how many employees a business actually has so as to be able to effectively make an eligibility determination. What else will it track and how?
Why the snark? I’m sharing what I understand about it, and asking for input, which you and a few others have been nice enough to provide plenty of. I accept I don’t have all the answers - ergo my post in the first place. If I did I wouldn’t be asking this group. Sheesh. (And btw, as far as I know nothing I’ve offered would be in the realm of disinformation. Some holes? Maybe.
Claims that very risky loans are "guaranteed" and "can't default" to me is purely disinformation. You are just repeating the claims by industry insiders that really are designed to funnel more money into crypto without consideration for actual risk.
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arcticpineapplecorp.
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by arcticpineapplecorp. »

reminds me of bitconnect. I wrote about it here:
viewtopic.php?f=1&t=234790=bitconnect
and discussed it here:
viewtopic.php?f=1&t=238661=bitconnect
viewtopic.php?f=10&t=229346=bitconnect

my neighbor lost everything she put into bitconnect (it was a lending program similar to what you're discussing).

It went out of business in March of 2018 if memory serves. ponzi scheme.

do you know what 8% per month would be annualized??
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Topic Author
tman9999
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by tman9999 »

typical.investor wrote: Sun Aug 09, 2020 9:16 pm
Claims that very risky loans are "guaranteed" and "can't default" to me is purely disinformation. You are just repeating the claims by industry insiders that really are designed to funnel more money into crypto without consideration for actual risk.
I didn’t say “guaranteed”. I said 100%+ collateralized with an auto-liquidate trigger. I don’t know enough about how that works in practice, but that’s my understanding of how it’s set up.

Do you have any knowledge about how such a trigger could fail, leaving the lender holding the bag? I don’t- big part of why I’m asking.
000
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by 000 »

tman9999 wrote: Sun Aug 09, 2020 9:45 pm
typical.investor wrote: Sun Aug 09, 2020 9:16 pm
Claims that very risky loans are "guaranteed" and "can't default" to me is purely disinformation. You are just repeating the claims by industry insiders that really are designed to funnel more money into crypto without consideration for actual risk.
I didn’t say “guaranteed”. I said 100%+ collateralized with an auto-liquidate trigger. I don’t know enough about how that works in practice, but that’s my understanding of how it’s set up.

Do you have any knowledge about how such a trigger could fail, leaving the lender holding the bag? I don’t- big part of why I’m asking.
How are they using the borrowed funds if they're 100%+ collateralized??

Seems like a contradiction in terms.
typical.investor
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by typical.investor »

tman9999 wrote: Sun Aug 09, 2020 9:45 pm
typical.investor wrote: Sun Aug 09, 2020 9:16 pm
Claims that very risky loans are "guaranteed" and "can't default" to me is purely disinformation. You are just repeating the claims by industry insiders that really are designed to funnel more money into crypto without consideration for actual risk.
I didn’t say “guaranteed”. I said 100%+ collateralized with an auto-liquidate trigger. I don’t know enough about how that works in practice, but that’s my understanding of how it’s set up.
Proponents in this thread have said "a guaranteed rate of 8.6%". I am pointing out that the 100%+ collateralization provides no actual guarantee.
tman9999 wrote: Sun Aug 09, 2020 9:45 pm Do you have any knowledge about how such a trigger could fail, leaving the lender holding the bag? I don’t- big part of why I’m asking.
Taking out loans collateralized by cryptos to invest more in cryptos. What could go wrong????

Take your example of 140% collateralization, and suppose the trigger is at 100%. If the value of coins drop and there are outflows for whatever reason (case of fraud in the news, unfavorable legislation, need to raise funds etc), those borrowing (and those holding coins to a lesser degree) know the trigger will be approaching. Big holders might want to get out knowing that doing so may move the market downward, and they can likely get back in later after a crash.

Anyway, look at municipal bonds recently. They crashed hard in March and not only or mainly from COVID induced credit risk. Municipal bond money market funds often take short term bonds and place them as collateral in trusts which use them to borrow funds and invest in longer term, higher yielding bonds. When investors rushed to liquidate their money market funds (needing cash in the COVID crisis), those trusts had their collateral withdrawn and they were forced to sell their longer term holdings. This impacted the market overall. Then many concluded that the market was saying the credit risk of munis were being shown in market prices to be very high. So more people left munis out of credit risk fears which was being confused with the liquidity issues.

You are talking about miners and VC's with large positions in cryptos taking out loans. Given that their all liquidating cryptos at the same time if triggers are hit will definitely move the market downward, I fully expect them to sell early in order to avoid it. That threat itself could push things below the trigger levels if things get sketchy.

Just look at what happened in Black (not appropriate use of that term perhaps but that is what it is called) Monday. Insurance products had triggers to sell out of the market to protect against loss, and thus the snowball began.

I’m not saying the risk can’t pay off by the way; I am saying the risk can show up and 150% collatoralization might not save you.

I can’t tell which will happen.
MBB_Boy
Posts: 191
Joined: Sat May 12, 2018 4:09 pm

Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by MBB_Boy »

OP,

Thanks for raising the topic. I was an early adopter / investor in a few different crypto assets, and am up a bunch even after the big crash (but boy do I wish I had cashed more out!).

Anyway, have spent some time looking at the various options and catching up on some parts of the space. Based on what I've found, I've decided to "lend" some of my crypto to one of the players in this space. This particular player (BlockFi) uses Gemini as their custodian, which is regulated by NYSDFS (who is generally a PITA to work with). We will see how it goes, but I already hold the assets and they don't do anything but sit there and grow / decrease in value seemingly at random. Might as well have them grow at 4-6%, in addition to the value swings.

The stablecoin investments at the ~8% are also interesting. GUSD is the stablecoin backed by Gemini, which as I already mentioned is regulated by an aggressive entity. I would feel pretty confident in them. USDC is issued by Coinbase, also regulated by the same entity. Turning some $ into those assets and then lending it out at 8% is still risky, but not scam level risky IMO. I used to dabble in P2P lending, and I view this in the same vein. This at least has the advantage of allowing you to withdraw whenever you want, instead of being invested for a 3-5 year term. I have not decided on whether I am interested in pursuing this - it's apples / oranges from my decision to invest crypto assets.

All this said, I don't view this as being a true "DeFi" application. Also, many things about this run counter to the "true" spirit of crypto - working with a centralized, regulated entitity that requires proof of identity (e.g., SSN and driver's license, just like a bank) and then turning over your crypto assets directly (not your keys, not your assets!) is basically violating the first two rules of crypto. HOWEVER, there's still a money making opportunity here, and one that falls within my risk tolerance (again, comparable to P2P in a lot of ways).

Obviously, anyone who wants to do something like this should be aware of their risk tolerance, limit their exposure, do their diligence, etc etc. I for one am not going to put my emergency fund in this chasing the 8% interest (and no one should!).

And of course, when the interest rates presumably drop as enough interest builds that they can lower their cost of capital, I will re-assess. Part of the reason the interest rate is so high is that many people are skeptical. After it normalizes (and assuming nothing blows up), that will change and the rate of return will change accordingly. As it should.
manuvns
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by manuvns »

why not just buy junk bonds and EM bonds and earn 4-5%
MBB_Boy
Posts: 191
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Re: Anyone using crypto exchanges to earn higher interest on their cash?

Post by MBB_Boy »

000 wrote: Sun Aug 09, 2020 9:46 pm
tman9999 wrote: Sun Aug 09, 2020 9:45 pm
typical.investor wrote: Sun Aug 09, 2020 9:16 pm
Claims that very risky loans are "guaranteed" and "can't default" to me is purely disinformation. You are just repeating the claims by industry insiders that really are designed to funnel more money into crypto without consideration for actual risk.
I didn’t say “guaranteed”. I said 100%+ collateralized with an auto-liquidate trigger. I don’t know enough about how that works in practice, but that’s my understanding of how it’s set up.

Do you have any knowledge about how such a trigger could fail, leaving the lender holding the bag? I don’t- big part of why I’m asking.
How are they using the borrowed funds if they're 100%+ collateralized??

Seems like a contradiction in terms.
They loan out 50% of the collateral
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