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There are a few salient points to unpack here: 1. Are these companies breaking the law? 2. Are Nexo and others "tak[ing] advantage of unsuspecting investors"?

There are a few salient points to unpack here: 1. Are these companies breaking the law? 2. Are Nexo and others "tak[ing] advantage of unsuspecting investors"? 3. Does these companies think they're "above the law"? 4. Is the Martin Act protecting the investing public in this case? Each of these is deserving of its own in-depth answer, but TLDRs are sufficient: 1. Yes, because securities law is written to be a catch all (both the Martin Act and the 1933/34 Securities Acts) where exceptions are drawn as to what is _not_ a security. While these accounts may act more like traditional "bank accounts", bank accounts are specifically excluded from securities law because they fall under a (stricter) regulatory regime. 2. No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. 3. I don't think so, but they do know they're not in full compliance. This is a game of Natural Law (see point 4) and cat and mouse, and staying ahead of regulators is different than being "above" the law. 4. Stablecoin yield-accounts are one of the few liquid, low-risk options for beating inflation and likely the only one accessible for every-day people. If anything, they should be more pervasive in accordance with the principal that BlockFi, Nexo, etc. and their ilk are offering a social good even if it is outside of what they are _permitted_ to allow by law. It is US fiscal policy, brittle supply chains, and lagging regulatory regimes that are detrimental to the investing public here.

VHRanger 5y ago
Stablecoin yield accounts don't just beat inflation They guarantee ridiculous crap like 9% yields, beating historical equities YoY returns 9% yields are generally indicative of fraud - especially when we've had news of Ponzi like behavior from celsius admitting to taking on a $1B USDT loan collateralized by BTC from tether the other week.
vineyardmike 5y ago
> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here. Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account. Also, they have insurance, but I'll believe its useful when its tested.
- cinquemb 5y ago
  > How are these companies providing 8%+ return on stable coins? Aave/Compound/Curve/Benqi <- decentralized non custodial overcollateralized lending protocols. These centralized and incorporated companies [basically a big bulls eye saying "please screw me over, here, I'll make it very easy for you for governments"] use Aave/Curve/Compound on behalf of their users who are too lazy/ignorant to do it themselves, plus maybe some economies of scale with cost of gas fee on ethereum. Right now on benqi (compound fork on avalanche), one can supply DAI and get 8.09% APY in DAI alone (there's more APY in other tokens but I don't like to count those since those incentives come and go), but it fluctuates based on borrower demand/pricing model used in the smart contracts [0]. By supplying DAI, using it as collateral to borrow more dai (up to 75% for dai, different collateral factors for non stablecoins, i think max 60% of collateral value, some with 0%[which means it cannot be used as collateral but it can be lent/borrowed, USDT is like this]) and then depositing it back in again, you can get more yield on that minus the borrowing costs if there are protocol rewards/incentives to be liquidated for more dai. There's also providing stablecoin <-> stablecoin liquidity on dexes and collecting fees on each swap. [0]: compounds jump rate model: https://github.com/compound-finance/compound-protocol/blob/master/contracts/JumpRateModelV2.sol https://github.com/compound-finance/compound-protocol/blob/m...
graeme 5y ago
> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. Nexo, Celsius etc own your crypto. Like the terms say you sold it to them. Pretty sure a broker does not own your portfolio.
- MrStonedOne 5y ago
  >Pretty sure a broker does not own your portfolio. They do. The shares in your account are registered in the brokers name.
  - graeme 5y ago
    They don’t own it the way Celsius owns your crypto. Celsius can do anything with the crypto it has. It is theirs. Stockbrokers have rules, segregated accounts, and insurance. There is also a direct registration option through the DRP. https://www.investopedia.com/articles/investing/050515/what-happens-when-stock-broker-goes-bust.asp https://www.investopedia.com/articles/investing/050515/what-...
xur17 5y ago
> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. The fact that it isn't clear to you what this insurance policy covers is the concerning part (and the wording is likely not a mistake on the part of Nexo, etc). Genesis insures the custody of crypto assets. It does not insure against default of the vendors it is loaning out to (which is likely the majority of their assets). My understanding is that most of the crypto lending platforms deposit with Genesis trading in order to generate a return. Genesis trading then loans this money out to different hedge funds, trading firms, etc, which pay them interest. I assume Genesis does a good job of choosing who to lend to, reducing risk, etc, but I also imagine that one black swan event could wipe it all out. Ex: USDT collapses HARD, and goes to 0. All of the trading firms with excessive USDT exposure collapse, Genesis is underwater, etc.
- recursive4 5y ago
  You’re correct that the insurance policies cover operational risk (again, akin to FDIC) but not default risk.
  - xur17 5y ago
    Doesn't FDIC cover default risk as well?

VHRanger 5y ago

Stablecoin yield accounts don't just beat inflation They guarantee ridiculous crap like 9% yields, beating historical equities YoY returns 9% yields are generally indicative of fraud - especially when we've had news of Ponzi like behavior from celsius admitting to taking on a $1B USDT loan collateralized by BTC from tether the other week.

vineyardmike 5y ago

> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here. Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account. Also, they have insurance, but I'll believe its useful when its tested.

cinquemb 5y ago
> How are these companies providing 8%+ return on stable coins? Aave/Compound/Curve/Benqi <- decentralized non custodial overcollateralized lending protocols. These centralized and incorporated companies [basically a big bulls eye saying "please screw me over, here, I'll make it very easy for you for governments"] use Aave/Curve/Compound on behalf of their users who are too lazy/ignorant to do it themselves, plus maybe some economies of scale with cost of gas fee on ethereum. Right now on benqi (compound fork on avalanche), one can supply DAI and get 8.09% APY in DAI alone (there's more APY in other tokens but I don't like to count those since those incentives come and go), but it fluctuates based on borrower demand/pricing model used in the smart contracts [0]. By supplying DAI, using it as collateral to borrow more dai (up to 75% for dai, different collateral factors for non stablecoins, i think max 60% of collateral value, some with 0%[which means it cannot be used as collateral but it can be lent/borrowed, USDT is like this]) and then depositing it back in again, you can get more yield on that minus the borrowing costs if there are protocol rewards/incentives to be liquidated for more dai. There's also providing stablecoin <-> stablecoin liquidity on dexes and collecting fees on each swap. [0]: compounds jump rate model: https://github.com/compound-finance/compound-protocol/blob/master/contracts/JumpRateModelV2.sol https://github.com/compound-finance/compound-protocol/blob/m...

graeme 5y ago

MrStonedOne 5y ago
>Pretty sure a broker does not own your portfolio. They do. The shares in your account are registered in the brokers name.
- graeme 5y ago
  They don’t own it the way Celsius owns your crypto. Celsius can do anything with the crypto it has. It is theirs. Stockbrokers have rules, segregated accounts, and insurance. There is also a direct registration option through the DRP. https://www.investopedia.com/articles/investing/050515/what-happens-when-stock-broker-goes-bust.asp https://www.investopedia.com/articles/investing/050515/what-...

xur17 5y ago

> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here. The fact that it isn't clear to you what this insurance policy covers is the concerning part (and the wording is likely not a mistake on the part of Nexo, etc). Genesis insures the custody of crypto assets. It does not insure against default of the vendors it is loaning out to (which is likely the majority of their assets). My understanding is that most of the crypto lending platforms deposit with Genesis trading in order to generate a return. Genesis trading then loans this money out to different hedge funds, trading firms, etc, which pay them interest. I assume Genesis does a good job of choosing who to lend to, reducing risk, etc, but I also imagine that one black swan event could wipe it all out. Ex: USDT collapses HARD, and goes to 0. All of the trading firms with excessive USDT exposure collapse, Genesis is underwater, etc.

recursive4 5y ago
You’re correct that the insurance policies cover operational risk (again, akin to FDIC) but not default risk.
- xur17 5y ago
  Doesn't FDIC cover default risk as well?