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Can you explain some of the ways then? Not the user facing side, but the backend/underlying part that generates the returns necessary to sustain those yields.

sec400 5y ago
Not Celsius specifically but you can see details about yearn's strats here: https://docs.yearn.finance/getting-started/products/yvaults/overview https://docs.yearn.finance/getting-started/products/yvaults/... Specific vaults strats: https://medium.com/yearn-state-of-the-vaults/the-vaults-at-yearn-9237905ffed3 https://medium.com/yearn-state-of-the-vaults/the-vaults-at-y... Links to the actual contracts: https://yearn.watch/ https://yearn.watch/
- adam_arthur 5y ago
  I just glanced through these and don't see any explanation. They basically just say "we put it in a vault and harvest the rewards". What I'm asking is where do the rewards come from. What is the underlying mechanism that makes this model sustainable. If you invest in a REIT, tenants earn money through their business and pay rents. If you invest in a BDC, the BDC makes loans to businesses and collects interest. Relationship and risks are quite clear here. If you're Bernie Madoff you generated high yields for investors for decades by taking money from one investor to pay another, and ultimately was not sustainable and bankrupted many people. For example. So are DeFi yields like a BDC, or like a Bernie Madoff?
  - anonymoushn 5y ago
    Some yearn vaults invest in liquidity pools that let users pay 10bps or whatever to trade one stablecoin for another. So the yield comes from that 10bps fee. The sUSD yVault deposits sUSD into overcollateralized lending protocols and collects interest on loans to other users (who are presumably using Aave or CREAM as places to buy leverage to get super fucking long crypto). So the yield comes from other users paying interest to borrow sUSD.
  - bhouston 5y ago
    I think the main answer to most of these questions is that everything works well as long as BTC and most others currencies continues to rapidly increase in value as a result of a lot of cash inflows into these cryptocurrencies. This papers over all of the fraud at least for now... When the explanation is too complex for anyone to really grasp or verify, realize that this is probably intentionally opaque in order to hide the fact that it is either hugely risky, built on a house of cards or it may be just outright fraud.
    - anonymoushn 5y ago
      Yeah, you'll see defi yields go a lot lower in a bear market. They were tiny for a couple months over the summer.
    - SilasX 5y ago
      FYI, I made a big reply that includes a response to your claim: https://news.ycombinator.com/item?id=29501396 https://news.ycombinator.com/item?id=29501396
SilasX 5y ago
I think I can answer your questions. Background/Disclaimer: I'm long crypto and have significant assets in Gemini's Earn program, a regulated variant of crypto lending that pays 8% on their stablecoin, GUSD. I found Celsius and Yearn to be too sketchy/inscrutable to bother with[1], so I'm not going to defend anything about them, only the narrower claim that (some) DeFi liquidity pools are a non-Ponzi, sane way to earn returns in some conditions. Liquidity pools [2] function as automatic market makers, using their assets to allow traders to trade between two cryptocurrencies. As a liquidity provider, you lock up two cryptos in return for a cut of the fees it takes from traders; your cut is proportional to how much liquidity you contributed. Those pools expose an interface to the Eth network that lets anyone put one of the cryptos in and take the other out, with a pre-determined formula for how it figures the exchange rate. Its profitability comes from the extent to which this exchange (after accounting for both pool fees and Eth network fees) gives a better deal to traders than their other alternatives (like centralized exchanges). Like any market maker, you face the risk of "impermanent loss" from the shift in relative value of the cryptos, as market makers make standing buy/sell offers which look stupid when the market moves against them. There are also setup fees and all the usual risks associated with smartcontracts. When you consider how long you have to leave them in the pool to make a profit, and those fixed setup fees, plus the opportunity costs of lending through other providers with less volatility[4], the returns (3-100%) just about barely compensate you for the risk. I experimented with them starting about three months ago and made a presentation, for which you're welcome to see the slides (slide 7 summarizes the downsides): https://docs.google.com/presentation/d/1BrMMbL5vOzdnkaPVj5mOMqkd5D-5QK1zR2AHK6qOQNU/edit https://docs.google.com/presentation/d/1BrMMbL5vOzdnkaPVj5mO... Contra bhouston's claim [3], these LPs don't require ETH to perpetually gain value: as long as traders continue to use the pool, ETH could stay stagnant or even fall significantly and they will still pay a return, though a long-term fall would induce a big impermanent loss (in an ETH-stablecoin pool) that would take a while for fees to compensate you for. (Edit: Although I suppose you could argue that people won't keep trading between ETH and other tokens unless that speculation, in the aggregate, is merited -- but it's not a simple matter of the pools only being profitable as some kind of derivative of ETH's value.) [1] In the case of Celsius, largely because of this: https://prohashing.com/guides/earning-interest-on-crypto https://prohashing.com/guides/earning-interest-on-crypto [2] I've mainly worked with Uniswap v3; some of the details may vary slightly in other protocols. [3] https://news.ycombinator.com/item?id=29498814 https://news.ycombinator.com/item?id=29498814 [4] For example, Gemini will lend out your GRT tokens at 6.4%, so that's your minimal return for this to be a good idea.
TimJRobinson 5y ago
Most of the high yields come day traders paying trading fees. For example on sushiswap on Polygon there are pools of ETH/USDC that people trade back and forth with trying to play the market. Every time they do a trade they pay a 0.3% fee. If you provide liquidity to these pools there is so much trading going on that the returns are currently 20% - 30% per year. You can earn even more if you provide liquidity for riskier assets that have a higher chance of dropping in value. The risks are impermanent loss and that the token you're providing liquidity for drops in value. Yearn is a decentralized automated tool to find the platform that is giving the best returns and moving all the money they manage into it. All of this is open source and on the blockchain.
- adam_arthur 5y ago
  But the fees are taken from people speculating in crypto to make money. Even though these are "fees" or "loans", the purpose is strictly speculation. It's not driven by intrinsic value, but people attempting to make money via speculation. If I take a loan for a house, I can live in it. That's intrinsic value. So the system only works to the extent that people are willing to pay for tokens without intrinsic value. Does not seem sustainable to me
  - TimJRobinson 5y ago
    I don't particularly care why they're trying to trade the markets, or if they're providing intrinsic value, but I'm happy to invest money and collect 20-30% dividends from them. If everyone suddenly decides they don't want to trade any more, then I'll find somewhere else to invest my money.

sec400 5y ago

Not Celsius specifically but you can see details about yearn's strats here: https://docs.yearn.finance/getting-started/products/yvaults/overview https://docs.yearn.finance/getting-started/products/yvaults/... Specific vaults strats: https://medium.com/yearn-state-of-the-vaults/the-vaults-at-yearn-9237905ffed3 https://medium.com/yearn-state-of-the-vaults/the-vaults-at-y... Links to the actual contracts: https://yearn.watch/ https://yearn.watch/

adam_arthur 5y ago
I just glanced through these and don't see any explanation. They basically just say "we put it in a vault and harvest the rewards". What I'm asking is where do the rewards come from. What is the underlying mechanism that makes this model sustainable. If you invest in a REIT, tenants earn money through their business and pay rents. If you invest in a BDC, the BDC makes loans to businesses and collects interest. Relationship and risks are quite clear here. If you're Bernie Madoff you generated high yields for investors for decades by taking money from one investor to pay another, and ultimately was not sustainable and bankrupted many people. For example. So are DeFi yields like a BDC, or like a Bernie Madoff?
- anonymoushn 5y ago
  Some yearn vaults invest in liquidity pools that let users pay 10bps or whatever to trade one stablecoin for another. So the yield comes from that 10bps fee. The sUSD yVault deposits sUSD into overcollateralized lending protocols and collects interest on loans to other users (who are presumably using Aave or CREAM as places to buy leverage to get super fucking long crypto). So the yield comes from other users paying interest to borrow sUSD.
- bhouston 5y ago
  I think the main answer to most of these questions is that everything works well as long as BTC and most others currencies continues to rapidly increase in value as a result of a lot of cash inflows into these cryptocurrencies. This papers over all of the fraud at least for now... When the explanation is too complex for anyone to really grasp or verify, realize that this is probably intentionally opaque in order to hide the fact that it is either hugely risky, built on a house of cards or it may be just outright fraud.
  - anonymoushn 5y ago
    Yeah, you'll see defi yields go a lot lower in a bear market. They were tiny for a couple months over the summer.
  - SilasX 5y ago
    FYI, I made a big reply that includes a response to your claim: https://news.ycombinator.com/item?id=29501396 https://news.ycombinator.com/item?id=29501396

SilasX 5y ago

I think I can answer your questions. Background/Disclaimer: I'm long crypto and have significant assets in Gemini's Earn program, a regulated variant of crypto lending that pays 8% on their stablecoin, GUSD. I found Celsius and Yearn to be too sketchy/inscrutable to bother with[1], so I'm not going to defend anything about them, only the narrower claim that (some) DeFi liquidity pools are a non-Ponzi, sane way to earn returns in some conditions. Liquidity pools [2] function as automatic market makers, using their assets to allow traders to trade between two cryptocurrencies. As a liquidity provider, you lock up two cryptos in return for a cut of the fees it takes from traders; your cut is proportional to how much liquidity you contributed. Those pools expose an interface to the Eth network that lets anyone put one of the cryptos in and take the other out, with a pre-determined formula for how it figures the exchange rate. Its profitability comes from the extent to which this exchange (after accounting for both pool fees and Eth network fees) gives a better deal to traders than their other alternatives (like centralized exchanges). Like any market maker, you face the risk of "impermanent loss" from the shift in relative value of the cryptos, as market makers make standing buy/sell offers which look stupid when the market moves against them. There are also setup fees and all the usual risks associated with smartcontracts. When you consider how long you have to leave them in the pool to make a profit, and those fixed setup fees, plus the opportunity costs of lending through other providers with less volatility[4], the returns (3-100%) just about barely compensate you for the risk. I experimented with them starting about three months ago and made a presentation, for which you're welcome to see the slides (slide 7 summarizes the downsides): https://docs.google.com/presentation/d/1BrMMbL5vOzdnkaPVj5mOMqkd5D-5QK1zR2AHK6qOQNU/edit https://docs.google.com/presentation/d/1BrMMbL5vOzdnkaPVj5mO... Contra bhouston's claim [3], these LPs don't require ETH to perpetually gain value: as long as traders continue to use the pool, ETH could stay stagnant or even fall significantly and they will still pay a return, though a long-term fall would induce a big impermanent loss (in an ETH-stablecoin pool) that would take a while for fees to compensate you for. (Edit: Although I suppose you could argue that people won't keep trading between ETH and other tokens unless that speculation, in the aggregate, is merited -- but it's not a simple matter of the pools only being profitable as some kind of derivative of ETH's value.) [1] In the case of Celsius, largely because of this: https://prohashing.com/guides/earning-interest-on-crypto https://prohashing.com/guides/earning-interest-on-crypto [2] I've mainly worked with Uniswap v3; some of the details may vary slightly in other protocols. [3] https://news.ycombinator.com/item?id=29498814 https://news.ycombinator.com/item?id=29498814 [4] For example, Gemini will lend out your GRT tokens at 6.4%, so that's your minimal return for this to be a good idea.

TimJRobinson 5y ago

Most of the high yields come day traders paying trading fees. For example on sushiswap on Polygon there are pools of ETH/USDC that people trade back and forth with trying to play the market. Every time they do a trade they pay a 0.3% fee. If you provide liquidity to these pools there is so much trading going on that the returns are currently 20% - 30% per year. You can earn even more if you provide liquidity for riskier assets that have a higher chance of dropping in value. The risks are impermanent loss and that the token you're providing liquidity for drops in value. Yearn is a decentralized automated tool to find the platform that is giving the best returns and moving all the money they manage into it. All of this is open source and on the blockchain.

adam_arthur 5y ago
But the fees are taken from people speculating in crypto to make money. Even though these are "fees" or "loans", the purpose is strictly speculation. It's not driven by intrinsic value, but people attempting to make money via speculation. If I take a loan for a house, I can live in it. That's intrinsic value. So the system only works to the extent that people are willing to pay for tokens without intrinsic value. Does not seem sustainable to me
- TimJRobinson 5y ago
  I don't particularly care why they're trying to trade the markets, or if they're providing intrinsic value, but I'm happy to invest money and collect 20-30% dividends from them. If everyone suddenly decides they don't want to trade any more, then I'll find somewhere else to invest my money.