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I don’t understand how you can make a profit larger than the risk-free rate of return without at least some risk; i.e. any risk free profit should be arbitraged

I don’t understand how you can make a profit larger than the risk-free rate of return without at least some risk; i.e. any risk free profit should be arbitraged away. If Coinbase has truly found risk-free profit it would be more profitable to sell it as an investment to some hedge fund, not give away free returns to retail.

ethbr0 5y ago
Answer: Legal ambiguity carries its own risk. Therefore, rates in more ambiguous instruments should be higher than those in more certain ones, no?
anonymoushn 5y ago
The risk-free rate in this sector is substantially higher than 4%.
- Alex3917 5y ago
  If the value of crypto is that it drives down the risk of lending by bringing transparency to the assets of borrowers, then how can the interest rate be higher than in the normal financial system? The fact that there is less risk but interest rates are higher should tell you everything you need to know about why this is a scam.
  - anonymoushn 5y ago
    The question is "Why is there often 20% per year or higher cash-and-carry arbitrage for assets that have near zero carrying cost?" The answer might be that every crypto exchange has a 15% or higher chance of exploding per year and they've all just been extremely lucky, but I wonder if this is really the best explanation we can come up with.
- quickthrowman 5y ago
  It’s not risk free, US Treasuries are ‘risk-free’ and anything that pays a higher yield has risk. If it didn’t have risk, it would be arbitraged down to the risk-free rate.
  - SilasX 5y ago
    And even the risk-free rate on[1] Treasurys is being held down by tremendous Federal Reserve purchases. (The Fed doesn't buy crypto loans, or at least, won't until Goldman Sachs keeps some on their balance sheet.) [1] at least short-term
  - anonymoushn 5y ago
    You can post that markets are efficient and I'll keep making money from obvious inefficiencies I guess.
    - deleted 5y ago
      [deleted]

ethbr0 5y ago

Answer: Legal ambiguity carries its own risk. Therefore, rates in more ambiguous instruments should be higher than those in more certain ones, no?

anonymoushn 5y ago

The risk-free rate in this sector is substantially higher than 4%.

Alex3917 5y ago
If the value of crypto is that it drives down the risk of lending by bringing transparency to the assets of borrowers, then how can the interest rate be higher than in the normal financial system? The fact that there is less risk but interest rates are higher should tell you everything you need to know about why this is a scam.
- anonymoushn 5y ago
  The question is "Why is there often 20% per year or higher cash-and-carry arbitrage for assets that have near zero carrying cost?" The answer might be that every crypto exchange has a 15% or higher chance of exploding per year and they've all just been extremely lucky, but I wonder if this is really the best explanation we can come up with.
quickthrowman 5y ago
It’s not risk free, US Treasuries are ‘risk-free’ and anything that pays a higher yield has risk. If it didn’t have risk, it would be arbitraged down to the risk-free rate.
- SilasX 5y ago
  And even the risk-free rate on[1] Treasurys is being held down by tremendous Federal Reserve purchases. (The Fed doesn't buy crypto loans, or at least, won't until Goldman Sachs keeps some on their balance sheet.) [1] at least short-term
- anonymoushn 5y ago
  You can post that markets are efficient and I'll keep making money from obvious inefficiencies I guess.
  - deleted 5y ago
    [deleted]