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Where is the $100 million going to come from? Do they have that much money to spare? Or are their customers about to take a haircut? On that topic, where does

Where is the $100 million going to come from? Do they have that much money to spare? Or are their customers about to take a haircut? On that topic, where does BlockFi's profit come from? They're offering 9% (previously 12%) interest on deposits. Are they really re-loaning that money to other people at the 20-30% interest rate required to produce those returns (high interest rates come with high default rates, so you need to overshoot your target by a lot to make up for defaults).

tcgv 5y ago
Not sure how BlockFi works exactly but most lending DeFi apps have really high collateral requirements and liquidate positions in case of violation of collateral requirements charging a penalty to close open positions early and ensure protocol assets are preserved before a "default" event can ever happen. They're not really "capital efficient".
- xur17 5y ago
  If you have some time, this [0] is a pretty good write up of a number of different cefi lending platforms. The part I find most interesting is that most places lend to Genesis Trading to generate most of their return, in some cases also lending out smaller portions themselves. [0] https://prohashing.com/guides/earning-interest-on-crypto https://prohashing.com/guides/earning-interest-on-crypto
AJ007 5y ago
I think a lot of these yields from “crypto” are on paper, and it’s misleading the “defi” operators and their investors in to thinking they have huge returns. That’s the only way that would systematically explain lending tokens at very high interest rates.
- e4e78a06 5y ago
  They're primarily lending to institutional customers (hedge funds, HFT's). If you look on DeFi markets borrowing a couple billion dollars is going to cost you a lot more than the 10% BlockFi is probably charging, due to how automated lending mechanisms work. The reason the yield is so high is because there's insufficient liquidity in ETH/BTC/stablecoins. Notice also that these loans are undercollateralized. DeFi lending requires overcollateralization which often is not appealing to HFT's executing low-risk arbitrage trades that make a few bps of profit. They need big leverage to make decent money. In our normal financial system banks are willing to lend them money, but in DeFi nobody does undercollateralized loans.
shawabawa3 5y ago
They likely re-lend on crypto platforms where thanks to incentives and high borrow demand you can relatively easily get 15+% yields For example anchor protocol offers 20% APY on UST deposited in it, and has done consistently for 6+months. As long as the peg holds and the protocol is solvent it's "free" money
- heyitsguay 5y ago
  Doesn't that just push the same question back a level? Where are these other platforms getting their profits from to sustain such high yields? If there's high demand for high-interest crypto loans, that means there should be platforms one can point to to trace the source of profit - the high-interest loans that fund the high-yield deposit platforms that fund this medium-yield deposit platform? The whole thing sounds incredibly scammy.
  - nazgulnarsil 5y ago
    not if more tether can be printed from thin air to pay the interest.
    - xur17 5y ago
      Fwiw, UST != USDT.
- vineyardmike 5y ago
  FYI. Anchor is almost out of money to pay that yield. https://au.finance.yahoo.com/news/anchor-protocol-reserves-slide-money-132554340.html https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...
  - shawabawa3 5y ago
    They topped that up with another $450M https://agora.terra.money/t/capitalising-anchors-reserve-with-450m/4236 https://agora.terra.money/t/capitalising-anchors-reserve-wit...
yellow_postit 5y ago
Loans have max 50% LTV and their loan rates are at least 4.5%. They must be reinvesting elsewhere similar to other bank models just a lot riskier, more opaque, and less regulation (for now). They’ve meaningfully cut interest rates over time as well often in response to market volatility.
- notahacker 5y ago
  Not sure borrow at 9% to lend at 4.5% is that similar to bank business models...
  - masonium 5y ago
    Their actual rates on most cryptos are much lower than 9%. https://blockfi.com/rates/ https://blockfi.com/rates/ BTC is 0.1% above 0.35 BTC. ETH is 0.25% above 5 ETH. I think we can agree these are not high rates. On the flip side, the rates for stablecoins (GUSD, USDC, USDT) are quite high still, at 7.75%. But it's not impossible to imagine institutions borrowing stablecoins at higher rates than that.

tcgv 5y ago

Not sure how BlockFi works exactly but most lending DeFi apps have really high collateral requirements and liquidate positions in case of violation of collateral requirements charging a penalty to close open positions early and ensure protocol assets are preserved before a "default" event can ever happen. They're not really "capital efficient".

xur17 5y ago
If you have some time, this [0] is a pretty good write up of a number of different cefi lending platforms. The part I find most interesting is that most places lend to Genesis Trading to generate most of their return, in some cases also lending out smaller portions themselves. [0] https://prohashing.com/guides/earning-interest-on-crypto https://prohashing.com/guides/earning-interest-on-crypto

AJ007 5y ago

I think a lot of these yields from “crypto” are on paper, and it’s misleading the “defi” operators and their investors in to thinking they have huge returns. That’s the only way that would systematically explain lending tokens at very high interest rates.

e4e78a06 5y ago
They're primarily lending to institutional customers (hedge funds, HFT's). If you look on DeFi markets borrowing a couple billion dollars is going to cost you a lot more than the 10% BlockFi is probably charging, due to how automated lending mechanisms work. The reason the yield is so high is because there's insufficient liquidity in ETH/BTC/stablecoins. Notice also that these loans are undercollateralized. DeFi lending requires overcollateralization which often is not appealing to HFT's executing low-risk arbitrage trades that make a few bps of profit. They need big leverage to make decent money. In our normal financial system banks are willing to lend them money, but in DeFi nobody does undercollateralized loans.

shawabawa3 5y ago

They likely re-lend on crypto platforms where thanks to incentives and high borrow demand you can relatively easily get 15+% yields For example anchor protocol offers 20% APY on UST deposited in it, and has done consistently for 6+months. As long as the peg holds and the protocol is solvent it's "free" money

heyitsguay 5y ago
Doesn't that just push the same question back a level? Where are these other platforms getting their profits from to sustain such high yields? If there's high demand for high-interest crypto loans, that means there should be platforms one can point to to trace the source of profit - the high-interest loans that fund the high-yield deposit platforms that fund this medium-yield deposit platform? The whole thing sounds incredibly scammy.
- nazgulnarsil 5y ago
  not if more tether can be printed from thin air to pay the interest.
  - xur17 5y ago
    Fwiw, UST != USDT.
vineyardmike 5y ago
FYI. Anchor is almost out of money to pay that yield. https://au.finance.yahoo.com/news/anchor-protocol-reserves-slide-money-132554340.html https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...
- shawabawa3 5y ago
  They topped that up with another $450M https://agora.terra.money/t/capitalising-anchors-reserve-with-450m/4236 https://agora.terra.money/t/capitalising-anchors-reserve-wit...

yellow_postit 5y ago

Loans have max 50% LTV and their loan rates are at least 4.5%. They must be reinvesting elsewhere similar to other bank models just a lot riskier, more opaque, and less regulation (for now). They’ve meaningfully cut interest rates over time as well often in response to market volatility.

notahacker 5y ago
Not sure borrow at 9% to lend at 4.5% is that similar to bank business models...
- masonium 5y ago
  Their actual rates on most cryptos are much lower than 9%. https://blockfi.com/rates/ https://blockfi.com/rates/ BTC is 0.1% above 0.35 BTC. ETH is 0.25% above 5 ETH. I think we can agree these are not high rates. On the flip side, the rates for stablecoins (GUSD, USDC, USDT) are quite high still, at 7.75%. But it's not impossible to imagine institutions borrowing stablecoins at higher rates than that.