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I understand why the lender demands 20%. The economic problem is that the borrower has no conceivable use for the funds which could reasonably be expected to c

I understand why the lender demands 20%. The economic problem is that the borrower has no conceivable use for the funds which could reasonably be expected to cover that yield (short of inventing the money out of thin air)

nostrademons 4y ago
The other side of the trade is frequently a pump & dump. With that much borrowed capital, you frequently can exert noticeable market power on many thinly-traded cryptos. Push the price higher, consistently, wait till Reddit & Telegram pick up on the coin, then dump it on a greater fool at vastly inflated prices and use a portion of the proceeds to pay back the loan. Works great until there are no greater fools and the proceeds (which are often some stablecoin, or BTC/ETH) end up worthless too. Before people shake their heads at how horrific crypto is, note that a good many leveraged buyouts operate on the same principle. Capitalist takes out a large loan at high interest rates, uses it to buy a company, company assumes the debt. Stripe mines company of assets & goodwill to goose the stock price. When the price is high, cash out and wait for shell of the company to implode under debt load, helped along by all the operational shortcuts that were taken to goose earnings.
- nemothekid 4y ago
  >Before people shake their heads at how horrific crypto is, note that a good many leveraged buyouts operate on the same principle. Oh so it's ok then, nothing to see here.
- bb88 4y ago
  I think that's a PG version of "The Horrors of Crypto" movie. There's an NC-17 version that includes rug pulls, fraud, and CSAM extortion.
- CaptainZapp 4y ago
  Except that there are real tangible assets involved in a leveraged buyout.
  - deleted 4y ago
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