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From the Coinbase page about Lend: >Lend your crypto to earn 4% APY >Your principal is guaranteed This definitely seems fishy. I don't see how this is possib

by Aunche 5y ago

From the Coinbase page about Lend: >Lend your crypto to earn 4% APY >Your principal is guaranteed This definitely seems fishy. I don't see how this is possible unless if their position isn't levered. However, if they aren't levered, then why can't they just lend USDC themselves?

runawaybottle 5y ago
Someone correct me if I’m wrong, but I don’t believe banks are allowed to lever at the multiples necessary to offer a 4% interest rate (the collateral requirements are prohibitively too high). Coinbase is not a bank and doesn’t have to play by these rules.
- cwyers 5y ago
  > Coinbase is not a bank and doesn’t have to play by these rules. Which is why this whole thing is such bullshit. Coinbase: Hey, SEC, we're just giving you a heads-up that we're going to start doing something that's not in your jurisdiction. It's a loan! SEC: Oh, so you're doing banking? Coinbase: Nope, we're not a bank, we don't have to follow banking regulations. SEC: ...get back in here.
ac29 5y ago
Coinbase isn't making a return via leveraged treasury bonds or something. They are lending the money out presumably to crypto traders, DeFi schemes, etc. If someone thinks they they can make a 100% return on borrowed money, they absolutely should borrow at 10% (or whatever Coinbase's target is for their risk-adjusted cut after paying 4% to their not-investors). The whole space is so opaque and unregulated that it seems fairly clear that people with big accounts can, and do make market moving trades frequently. You might ask, why would someone want to pay huge interest on stablecoins when money is so cheap to borrow from traditional finance now? Answer: the exchanges that do most of the action are offshore and probably nearly unbankable. FTX getting 1B of Tether several times in a week is business as usual for them (happened this past week), but its almost certainly impossible for them to get any Bank to do a 1B USD transfer without paperwork they cant provide.
hackingforfun 5y ago
It appears that Coinbase was going to achieve that 4% interest on USDC in Lend via Compound [1], which is a DeFi protocol they helped launch a few years ago [2]. However, it is not clear why they said "Your principal is guaranteed", since they didn't say how, and that is a pretty big claim. I'm guessing, since they didn't really specify, but assets lent in Compound (and other DeFi protocols) are generally over-collateralized [3][4], to protect loss of funds, so maybe they were relying on that. However, even with that, funds in DeFi protocols could still be affected by things like impermanent loss [5]. That said, maybe they were just relying on some insurance thing. [1] https://blockworks.co/coinbase-compound-labs-launch-usdc-high-yield-accounts/ https://blockworks.co/coinbase-compound-labs-launch-usdc-hig... [2] https://techcrunch.com/2018/05/16/cryptocurrency-compound-interest/ https://techcrunch.com/2018/05/16/cryptocurrency-compound-in... [3] https://www.gemini.com/cryptopedia/what-is-compound-and-how-does-it-work https://www.gemini.com/cryptopedia/what-is-compound-and-how-... [4] https://academy.binance.com/en/articles/what-is-compound-finance-in-defi https://academy.binance.com/en/articles/what-is-compound-fin... [5] https://academy.binance.com/en/articles/impermanent-loss-explained https://academy.binance.com/en/articles/impermanent-loss-exp...
- dcolkitt 5y ago
  Compound isn’t subject to impermanent loss. It’s a lending protocol, not an exchange protocol.
chinathrow 5y ago
A friend of mine tried to pitch me Nexo (nexo.io). He uses it to get up to 12% APY on his crypto lending - I can't wrap my head around it...

by Aunche 5y ago

runawaybottle 5y ago

Someone correct me if I’m wrong, but I don’t believe banks are allowed to lever at the multiples necessary to offer a 4% interest rate (the collateral requirements are prohibitively too high). Coinbase is not a bank and doesn’t have to play by these rules.

cwyers 5y ago
> Coinbase is not a bank and doesn’t have to play by these rules. Which is why this whole thing is such bullshit. Coinbase: Hey, SEC, we're just giving you a heads-up that we're going to start doing something that's not in your jurisdiction. It's a loan! SEC: Oh, so you're doing banking? Coinbase: Nope, we're not a bank, we don't have to follow banking regulations. SEC: ...get back in here.

ac29 5y ago

Coinbase isn't making a return via leveraged treasury bonds or something. They are lending the money out presumably to crypto traders, DeFi schemes, etc. If someone thinks they they can make a 100% return on borrowed money, they absolutely should borrow at 10% (or whatever Coinbase's target is for their risk-adjusted cut after paying 4% to their not-investors). The whole space is so opaque and unregulated that it seems fairly clear that people with big accounts can, and do make market moving trades frequently. You might ask, why would someone want to pay huge interest on stablecoins when money is so cheap to borrow from traditional finance now? Answer: the exchanges that do most of the action are offshore and probably nearly unbankable. FTX getting 1B of Tether several times in a week is business as usual for them (happened this past week), but its almost certainly impossible for them to get any Bank to do a 1B USD transfer without paperwork they cant provide.

hackingforfun 5y ago

It appears that Coinbase was going to achieve that 4% interest on USDC in Lend via Compound [1], which is a DeFi protocol they helped launch a few years ago [2]. However, it is not clear why they said "Your principal is guaranteed", since they didn't say how, and that is a pretty big claim. I'm guessing, since they didn't really specify, but assets lent in Compound (and other DeFi protocols) are generally over-collateralized [3][4], to protect loss of funds, so maybe they were relying on that. However, even with that, funds in DeFi protocols could still be affected by things like impermanent loss [5]. That said, maybe they were just relying on some insurance thing. [1] https://blockworks.co/coinbase-compound-labs-launch-usdc-high-yield-accounts/ https://blockworks.co/coinbase-compound-labs-launch-usdc-hig... [2] https://techcrunch.com/2018/05/16/cryptocurrency-compound-interest/ https://techcrunch.com/2018/05/16/cryptocurrency-compound-in... [3] https://www.gemini.com/cryptopedia/what-is-compound-and-how-does-it-work https://www.gemini.com/cryptopedia/what-is-compound-and-how-... [4] https://academy.binance.com/en/articles/what-is-compound-finance-in-defi https://academy.binance.com/en/articles/what-is-compound-fin... [5] https://academy.binance.com/en/articles/impermanent-loss-explained https://academy.binance.com/en/articles/impermanent-loss-exp...

dcolkitt 5y ago
Compound isn’t subject to impermanent loss. It’s a lending protocol, not an exchange protocol.

chinathrow 5y ago

A friend of mine tried to pitch me Nexo (nexo.io). He uses it to get up to 12% APY on his crypto lending - I can't wrap my head around it...