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> I don’t understand where DeFi yields come from Best I can tell from my research defi is being used for holder of volitile lower quality coins to exit without

> I don’t understand where DeFi yields come from Best I can tell from my research defi is being used for holder of volitile lower quality coins to exit without triggering a taxable event. This is based on how all the pools I found had clear lopsided supply of lending and borrowing. Stable coins all had the highest rates, with btc and eth being middling, and a flood of alt coins sitting in pools earning zero returns. This makes perfect sense. Margin loan volume is too low to explain the lending size. Likewise margin would want to borrow high volatility coins, and never stable coins. And yet stable coins are offering the highest interest precisely because stable coin borrowing is in demand. Overall defi makes sense if it is about holders of paper gains exiting with debt to avoid taxable events. It does suggest a worrying risk profile I suspect everyone is underesitmating: many borrowers do not care about the coins they put up as collateral.

pjc50 5y ago
> many borrowers do not care about the coins they put up as collateral. Oh, you can use "shitcoin" X as collateral for a loan in "stablecoin" Y? Can the borrower then selectively default if the X/Y exchange rate moves in their favor? In which case this is just a funny-looking option. > holders of paper gains exiting with debt to avoid taxable events A similar scheme was used to evade income tax in the UK with "loan forgiveness" for a while, but was ruled unlawful. I suppose the more crypto steps you put in the harder it is to trace.
- thebean11 5y ago
  > Can the borrower then selectively default if the X/Y exchange rate moves in their favor? They very much can. For that reason though, the loans are always over collateralized so defaulting involves leaving some money on the table. That money could be less than hypothetical tax payments though..not sure.

pjc50 5y ago

> many borrowers do not care about the coins they put up as collateral. Oh, you can use "shitcoin" X as collateral for a loan in "stablecoin" Y? Can the borrower then selectively default if the X/Y exchange rate moves in their favor? In which case this is just a funny-looking option. > holders of paper gains exiting with debt to avoid taxable events A similar scheme was used to evade income tax in the UK with "loan forgiveness" for a while, but was ruled unlawful. I suppose the more crypto steps you put in the harder it is to trace.

thebean11 5y ago
> Can the borrower then selectively default if the X/Y exchange rate moves in their favor? They very much can. For that reason though, the loans are always over collateralized so defaulting involves leaving some money on the table. That money could be less than hypothetical tax payments though..not sure.