6 ms·

So in other words, banks reinvest in the next hot thing hoping to make a buck? Seems analogous to what u say about crypto investing in the next hot new 'coin',

So in other words, banks reinvest in the next hot thing hoping to make a buck? Seems analogous to what u say about crypto investing in the next hot new 'coin', which very well is just a proxy to people trying to build something of value.

Closi 4y ago
Well the difference is that banks are highly regulated, and invest in a diverse portfolio of stocks, bonds and financial services which are usually expected to be underpinned by fundamental analysis. They are heavily audited and have strict rules about speculation. The difference to some pretty much unregulated company that reinvests lots of its money in crypto because crypto has gone up in the past so ‘past performance must equal future growth right?’ is pretty obvious to me.
- oarabbus_ 4y ago
  Like the OP said, UST was paying 19.5% to depositors. In contrast borrowers were only charged ~13%. A regulated bank could choose to do this if they really wanted to. So the main difference is really that banks run a sustainable model by charging borrowers more than they pay depositors (who are lenders in the fractional reserve model); by orders of magnitude. Being paid out more than is put in should've been a massive red flag to anyone who entertained the Luna ponzi.
  - UncleMeat 4y ago
    How do they prevent people from borrowing to deposit? If I own two wallets, would I be able to borrow some coins, transfer them to my other wallet, and then deposit them so I'm netting 6.5% for free?
    - jboy55 4y ago
      Well, the rigorous KYC regulations and policies mean they can ensure every person owns just one wallet... /s
  - raesene9 4y ago
    I would guess that in many countries a regulated bank offering more to depositors than they charged borrowers (without some kind of strict limits on the amount per customer) would get a visit from their regulators quite quickly to understand how this was sustainable and in-line with Banking regs. In the UK at least retail bank deposits are guaranteed up to £85k per account, so there's a real incentive for the banking industry to police their member as if one fails, they'll all take a hit.
    - charcircuit 4y ago
      >how this was sustainable Why does it need to be sustainable? The APR can simply lower once the high APR is no longer sustainable.
      - jannes 4y ago
        So you are saying it was sustainable at some point?
        charcircuit 4y ago
        Yes, it was sustainable for a period of time.
        Jensson 4y ago
        The most likely reason to pay much higher interest on money deposited than money they lend out is to steal the deposited money. It isn't illegal to do it, but it is a huge red flag which is why it would warrant an inspection. Smart contracts doesn't save you here, since the deposit happened when you bought their crypto coins, not when you signed the smart contract.
        arlcode 4y ago
        I wonder how they verified borrowers identity. Stealing the deposits would require a) Verification happens without any government id (I assume this is true) b) depends somehow on the bank / smart contract authors Then it would be trivially easy to generate huge amount of "borrowers" who simply "default" on their "loan".
  - starfallg 4y ago
    To add to that, financially, it makes no sense to borrow at such a high interest rate unless you have issues with obtaining credit traditionally. There is a reason why payday loans charge extortionate interest. Their bad loan rate is usually sky high. Their returns are substantially lower. Basically whether it works or not depends on if they could print money that holds value. Obviously they couldn't.
    - deleted 4y ago
      [deleted]
- spinny 4y ago
  > Well the difference is that banks are highly regulated ... probably why there is so many instances of banks getting caught laundering money for criminal organizations by the billions > They are heavily audited and have strict rules about speculation. you can audit blockchains. you can't audit a bank's database and have to way for the next panama papers leak
  - jboy55 4y ago
    Come on, what percentage of banking activity is money laundering, and what percentage of NFTs sold is money laundering? I think there is an order of magnitude, order of magnitude difference.
    - spinny 4y ago
      that is the wrong comparison IMHO. if you are talking about money laundering using NFT's as in pics of cartoon monkeys (an NFT is just a digital deed, the monkey pic is actually an extension), you should be comparing them to money laundering using art.
- toolz 4y ago
  > They are heavily audited and have strict rules about speculation. If only these "heavy" audits and "strict" rules could stop the incessant corruption we see all around the globe in federally insured banks. People who think crypto is shockingly bad just haven't been paying attention to banking. Sure, crypto is full of small scams and because of most of cryptos open fundamentals you can expect those scams will never grow into federally insured banks. That isn't the case for private banks who have been getting away with the worst scams for far longer than I've been alive.
  - itsoktocry 4y ago
    >That isn't the case for private banks who have been getting away with the worst scams People are straight-up rug-pulling in the crypto world for tens of millions of dollars, outright scams, and the scale of crypto is a fraction of the banking world. I bet you'd be hard pressed to name a couple equivalent scams banks have pulled in a first-world, financially regulated economy. I'm not talking about some rogue employee ripping off accounts, I mean organized fraud. Anyone who has ever actually worked with or in the financial industry knows how crazy the regulation is. It's far from perfect, but saying it's worse than the crypto world is laughable.
    - toolz 4y ago
      "far from perfect" - well that misses the mark by a long shot. We still have unsettled shorts happening every day that are often naked and regularly stay naked for months on end - companies are destroyed from this blatant market manipulation. Gamestop was 140% short! Is this uncommon? Many people seem to think not. The corruption in wall-street runs so deep that tax payers have to foot the bill when no middle class person would look over the toxic loans being packaged up pre-2008 and think that wasn't a scam. This crashed the world economy, it's hard to imagine a bigger scam ever being possible without the former bank CEOs running every financial branch of the government promising bail-outs to the "too big to fail" scammers.
      - Closi 4y ago
        > Gamestop was 140% short! Is this uncommon? Many people seem to think not. This is silly. Of course it is uncommon - if it was common we would see short squeezes all the time.
fennecfoxen 4y ago
Banks generally invest in something related to productive activity which is expected to provide an income stream. Crypto banks invest in something valued only for its popularity which is unrelated to productive activity. All investments are speculative and involve some risk. But outside of crypto, few of them are purely so.

Closi 4y ago

Well the difference is that banks are highly regulated, and invest in a diverse portfolio of stocks, bonds and financial services which are usually expected to be underpinned by fundamental analysis. They are heavily audited and have strict rules about speculation. The difference to some pretty much unregulated company that reinvests lots of its money in crypto because crypto has gone up in the past so ‘past performance must equal future growth right?’ is pretty obvious to me.

oarabbus_ 4y ago
Like the OP said, UST was paying 19.5% to depositors. In contrast borrowers were only charged ~13%. A regulated bank could choose to do this if they really wanted to. So the main difference is really that banks run a sustainable model by charging borrowers more than they pay depositors (who are lenders in the fractional reserve model); by orders of magnitude. Being paid out more than is put in should've been a massive red flag to anyone who entertained the Luna ponzi.
- UncleMeat 4y ago
  How do they prevent people from borrowing to deposit? If I own two wallets, would I be able to borrow some coins, transfer them to my other wallet, and then deposit them so I'm netting 6.5% for free?
  - jboy55 4y ago
    Well, the rigorous KYC regulations and policies mean they can ensure every person owns just one wallet... /s
- raesene9 4y ago
  I would guess that in many countries a regulated bank offering more to depositors than they charged borrowers (without some kind of strict limits on the amount per customer) would get a visit from their regulators quite quickly to understand how this was sustainable and in-line with Banking regs. In the UK at least retail bank deposits are guaranteed up to £85k per account, so there's a real incentive for the banking industry to police their member as if one fails, they'll all take a hit.
  - charcircuit 4y ago
    >how this was sustainable Why does it need to be sustainable? The APR can simply lower once the high APR is no longer sustainable.
    - jannes 4y ago
      So you are saying it was sustainable at some point?
      - charcircuit 4y ago
        Yes, it was sustainable for a period of time.
        Jensson 4y ago
        The most likely reason to pay much higher interest on money deposited than money they lend out is to steal the deposited money. It isn't illegal to do it, but it is a huge red flag which is why it would warrant an inspection. Smart contracts doesn't save you here, since the deposit happened when you bought their crypto coins, not when you signed the smart contract.
        arlcode 4y ago
        I wonder how they verified borrowers identity. Stealing the deposits would require a) Verification happens without any government id (I assume this is true) b) depends somehow on the bank / smart contract authors Then it would be trivially easy to generate huge amount of "borrowers" who simply "default" on their "loan".
- starfallg 4y ago
  To add to that, financially, it makes no sense to borrow at such a high interest rate unless you have issues with obtaining credit traditionally. There is a reason why payday loans charge extortionate interest. Their bad loan rate is usually sky high. Their returns are substantially lower. Basically whether it works or not depends on if they could print money that holds value. Obviously they couldn't.
  - deleted 4y ago
    [deleted]
spinny 4y ago
> Well the difference is that banks are highly regulated ... probably why there is so many instances of banks getting caught laundering money for criminal organizations by the billions > They are heavily audited and have strict rules about speculation. you can audit blockchains. you can't audit a bank's database and have to way for the next panama papers leak
- jboy55 4y ago
  Come on, what percentage of banking activity is money laundering, and what percentage of NFTs sold is money laundering? I think there is an order of magnitude, order of magnitude difference.
  - spinny 4y ago
    that is the wrong comparison IMHO. if you are talking about money laundering using NFT's as in pics of cartoon monkeys (an NFT is just a digital deed, the monkey pic is actually an extension), you should be comparing them to money laundering using art.
toolz 4y ago
> They are heavily audited and have strict rules about speculation. If only these "heavy" audits and "strict" rules could stop the incessant corruption we see all around the globe in federally insured banks. People who think crypto is shockingly bad just haven't been paying attention to banking. Sure, crypto is full of small scams and because of most of cryptos open fundamentals you can expect those scams will never grow into federally insured banks. That isn't the case for private banks who have been getting away with the worst scams for far longer than I've been alive.
- itsoktocry 4y ago
  >That isn't the case for private banks who have been getting away with the worst scams People are straight-up rug-pulling in the crypto world for tens of millions of dollars, outright scams, and the scale of crypto is a fraction of the banking world. I bet you'd be hard pressed to name a couple equivalent scams banks have pulled in a first-world, financially regulated economy. I'm not talking about some rogue employee ripping off accounts, I mean organized fraud. Anyone who has ever actually worked with or in the financial industry knows how crazy the regulation is. It's far from perfect, but saying it's worse than the crypto world is laughable.
  - toolz 4y ago
    "far from perfect" - well that misses the mark by a long shot. We still have unsettled shorts happening every day that are often naked and regularly stay naked for months on end - companies are destroyed from this blatant market manipulation. Gamestop was 140% short! Is this uncommon? Many people seem to think not. The corruption in wall-street runs so deep that tax payers have to foot the bill when no middle class person would look over the toxic loans being packaged up pre-2008 and think that wasn't a scam. This crashed the world economy, it's hard to imagine a bigger scam ever being possible without the former bank CEOs running every financial branch of the government promising bail-outs to the "too big to fail" scammers.
    - Closi 4y ago
      > Gamestop was 140% short! Is this uncommon? Many people seem to think not. This is silly. Of course it is uncommon - if it was common we would see short squeezes all the time.

fennecfoxen 4y ago

Banks generally invest in something related to productive activity which is expected to provide an income stream. Crypto banks invest in something valued only for its popularity which is unrelated to productive activity. All investments are speculative and involve some risk. But outside of crypto, few of them are purely so.