4 ms·

> Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings acco

> Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account. Ask yourself how risky this investment is, and why existing financial services aren't arbitraging it away. 1% a month is ~12% per year, which is comparable to CCC+ corporate bonds.

rglullis 4y ago
Risky? Yes, substantially. Question for you, though: how would "existing financial services" arbitrage it away? By entering the crypto market and copying Uniswap's contracts and just use smaller fees?
- karpierz 4y ago
  > Risky? Yes, substantially. Then why not park the money in existing financial instruments which have a larger risk profile than savings accounts? CCC bonds offer >14.7% yearly returns. Argentina's 10 year bonds have ~50% yearly return. > Question for you, though: how would "existing financial services" arbitrage it away? If you think the annual returns are priced appropriately due to risk of default, then they can't. I only brought this up because you compared it the returns on a savings account. Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return.
  - rglullis 4y ago
    > Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return. No, you can not. If you go to learn how Uniswap (the AMM system being discussed) works, you'll see that liquidity providers revenue comes from the swap fees. There is no compound interest, or any compounding effect for that matter. If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there.
    - arcticbull 4y ago
      > If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there. That's the definition of arbitrage.
      - rglullis 4y ago
        Ok, let me rephrase... there is no "sustained" arbitrage opportunity there. My point is that anyone that went on to offer 5% on the hopes of making more than that for any prolonged time would be making the exact same mistakes as BlockFi/Celsius/all others did.
        arcticbull 4y ago
        There's no such thing as a sustained arbitrage opportunity. The whole point of arbitrage opportunities is that they are self-limiting. For example, let's say there's a delta in terms of Bitcoin pricing in Korea vs the US - due to banking requirements. Let's call this the "Kimchi premium." Arbitrageurs find a way to buy at the US price, sell at the Korean price, and keep the difference. Their buying in a low-cost market and selling into a high-cost market ("capturing the premium") brings down the price discrepancy. You can only keep doing this as long as the structural inefficiency exists and also the number of participants remains low. The more participants, the more volume, the lower the premium. This btw is how SBF made all his money.
        rglullis 4y ago
        I understand what arbitrage is. I was arbitraging Bitcoin between Brazilian and American exchanges in 2012 already. My point in saying that there is no "arbitrage" is that you won't make any money if you offer 5% to people and expect to make more than that. Could you perhaps do with a little less pedantry and understand the overall message, or are you going to continue with needless pontification? It's late where I am and I would like to go to sleep.
  - makomk 4y ago
    Argentina quite reliably defaults on its bonds much more often than once a decade.
xyzzy123 4y ago
It's not so much that it's risky, it's that they'd have to spend a lot of money on the compliance position to tell them it's not and ... wait yeah, the bonds are a better idea in every way.

rglullis 4y ago

Risky? Yes, substantially. Question for you, though: how would "existing financial services" arbitrage it away? By entering the crypto market and copying Uniswap's contracts and just use smaller fees?

karpierz 4y ago
> Risky? Yes, substantially. Then why not park the money in existing financial instruments which have a larger risk profile than savings accounts? CCC bonds offer >14.7% yearly returns. Argentina's 10 year bonds have ~50% yearly return. > Question for you, though: how would "existing financial services" arbitrage it away? If you think the annual returns are priced appropriately due to risk of default, then they can't. I only brought this up because you compared it the returns on a savings account. Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return.
- rglullis 4y ago
  > Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return. No, you can not. If you go to learn how Uniswap (the AMM system being discussed) works, you'll see that liquidity providers revenue comes from the swap fees. There is no compound interest, or any compounding effect for that matter. If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there.
  - arcticbull 4y ago
    > If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there. That's the definition of arbitrage.
    - rglullis 4y ago
      Ok, let me rephrase... there is no "sustained" arbitrage opportunity there. My point is that anyone that went on to offer 5% on the hopes of making more than that for any prolonged time would be making the exact same mistakes as BlockFi/Celsius/all others did.
      - arcticbull 4y ago
        There's no such thing as a sustained arbitrage opportunity. The whole point of arbitrage opportunities is that they are self-limiting. For example, let's say there's a delta in terms of Bitcoin pricing in Korea vs the US - due to banking requirements. Let's call this the "Kimchi premium." Arbitrageurs find a way to buy at the US price, sell at the Korean price, and keep the difference. Their buying in a low-cost market and selling into a high-cost market ("capturing the premium") brings down the price discrepancy. You can only keep doing this as long as the structural inefficiency exists and also the number of participants remains low. The more participants, the more volume, the lower the premium. This btw is how SBF made all his money.
        rglullis 4y ago
        I understand what arbitrage is. I was arbitraging Bitcoin between Brazilian and American exchanges in 2012 already. My point in saying that there is no "arbitrage" is that you won't make any money if you offer 5% to people and expect to make more than that. Could you perhaps do with a little less pedantry and understand the overall message, or are you going to continue with needless pontification? It's late where I am and I would like to go to sleep.
- makomk 4y ago
  Argentina quite reliably defaults on its bonds much more often than once a decade.

xyzzy123 4y ago

It's not so much that it's risky, it's that they'd have to spend a lot of money on the compliance position to tell them it's not and ... wait yeah, the bonds are a better idea in every way.