My understanding (probably incomplete) is that a lot of the loans were short-term "flash loans". Being that the term was quite short, they're more akin to payda

My understanding (probably incomplete) is that a lot of the loans were short-term "flash loans". Being that the term was quite short, they're more akin to payday loans. If you were to compute the loan on an APY basis it would be usurious, but since it's only for a short period the total amount paid is small. Collect many of those short-term high-interest loans into a single bucket, and you have a longer-term high interest facility. Like being an LP in a credit fund. So there is a fairly high fundamental yield. Not 20%, but maybe 6%. Second, as the GP mentions, they were also using their marketing budget to pay an unsustainably high yield to excite and entice investors. So on to the 6%, add another 4% of VC money. Finally, they were underestimating the risk of the underlying loans defaulting, thereby causing them to overestimate the APY on the pool. That brought them to a place where they thought they could pay 20% instead of 10%. There might be more to it than that but that's what I understand.