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You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank). This "risk free rate" serves as

You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank). This "risk free rate" serves as the basis of the theory behind our entire banking system. The fact that Ethereum decided to recreate this under separate principles is somewhat amusing, but its just that. A recreation of what we're already familiar with in the financial world. The next question is if the cryptocoin world realizes how important it is to set the risk-free rate as appropriate for their ecosystem to function. Given how arbitrary it was to set the Etherium rate however, I don't think there was much thought put into that in practice. But baby steps I guess. The cryptocoin world is learning things at a different rate than the historians / financial experts who already see where things are going. Bad things happen if you set the risk-free rate too high, or too low by the way.

wizeman 4y ago
> You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank). Well, then those loans are also risk-free, right? Because they are also financed by increasing the money supply and the Fed can't spend the money that was loaned to them. But normal loans and bonds are not risk-free, they have a default risk. Which is the entire reason why when you loan your money, sometimes you can't get it back. Staking, however, is risk-free, so the following statements of yours are wrong. > Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business. > > Staking is not a loan. > Yes it is. You give your money over to another organization, and that organization promises a % yield / APY in return. You aren't allowed the money back until later. > Its totally a bond.
- dragontamer 4y ago
  Frankly, I see no contradiction, with what I said in any of my posts. Could you lay out more clearly where you think a contradiction has occurred?
  - wizeman 4y ago
    > Frankly, I see no contradiction, with what I said in any of my posts. Could you lay out more clearly where you think a contradiction has occurred? Sure. You said (in the context of talking about Binance and Coinbase): > Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business. This phrase, in the context of the news we're discussing (about suspending withdrawals), implies that Coinbase and Binance are also incurring in a risk of suspending withdrawals because they might run out of liquidity due to staking (which you said is equivalent to a "crappy loans / bonds business"). However, staking is not equivalent to a "crappy loans / bonds business". To argue that point, someone said that "Staking is not a loan", implying that unlike loans you can't lose money because of staking, but you said "it's totally a bond" because, I suppose, you're not allowed to get the money back until a certain time. However, I think that you are missing the fact that unlike with loans and bonds, there is no risk of running out of liquidity because of staking. If Coinbase and Binance were operating a real loans and bonds business (like banks do), and suddenly all customers demanded their deposits back, these exchanges couldn't force the borrowers to pay back their loans/bonds immediately so that they could fulfill the withdrawal demand. Not to mention that if the borrowers went bankrupt, the money would be lost, which would lead to Coinbase and Binance potentially losing customer funds, also becoming bankrupt and suspending withdrawals. This seems to be more or less what is happening with some of these exchanges that are running out of liquidity, because they seem to be essentially gambling with customer funds. But I think in staking it's completely different, because, as I argued, in staking there is no risk that borrowers go bankrupt and default on the loan/bond, as there are no borrowers. Instead, the yield is financed through inflation and the staked coins remain your property throughout the whole staking process -- nobody can spend them, so there is no risk that they can't be payed back. And on top of that, customers aren't allowed to withdraw the staked amount until the staking expires, so there is no risk that Coinbase and Binance can't fulfill withdrawals because of staking. Which means there is no risk of running out of liquidity because of staking. In fact, coins can only be staked if the customer decides to stake them. Which is also completely unlike the loans/bonds business, which happens behind the customer's back, essentially. The latter leads to broken customer expectations (and ruined lives) if/when the loans/bonds business goes under. Well, that's my understanding at least, but I'm sure I may be missing some points as I'm not actually an expert (or anything close to it) on staking.
- dibt 4y ago
  I think the confusion is that they believe the token that is staked is a sunk cost, the same way a business would spend the money from a loan. Like you said, the token will be returned when unstaked. If I take a loan out to buy and run a pizza restaurant, I can't just give the principal back if it fails. I would have to liquidate the business, which would not be equivalent to the starting capital costs.
  - dragontamer 4y ago
    The Fed always can return the money, because they control how much money is printed. Therefore, the money loaned to the Fed through the overnight rate is risk-free. That's why its called the risk-free rate. It may only be a singular day worth of bond / IOU, but its still a loan/bond/debt instrument. ------- Similarly, the Ethereum rewards are printed out of thin air, are they not? By the Ethereum staking system? Its not like the Ethereum they print existed beforehand.

wizeman 4y ago

> You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank). Well, then those loans are also risk-free, right? Because they are also financed by increasing the money supply and the Fed can't spend the money that was loaned to them. But normal loans and bonds are not risk-free, they have a default risk. Which is the entire reason why when you loan your money, sometimes you can't get it back. Staking, however, is risk-free, so the following statements of yours are wrong. > Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business. > > Staking is not a loan. > Yes it is. You give your money over to another organization, and that organization promises a % yield / APY in return. You aren't allowed the money back until later. > Its totally a bond.

dragontamer 4y ago
Frankly, I see no contradiction, with what I said in any of my posts. Could you lay out more clearly where you think a contradiction has occurred?
- wizeman 4y ago
  > Frankly, I see no contradiction, with what I said in any of my posts. Could you lay out more clearly where you think a contradiction has occurred? Sure. You said (in the context of talking about Binance and Coinbase): > Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business. This phrase, in the context of the news we're discussing (about suspending withdrawals), implies that Coinbase and Binance are also incurring in a risk of suspending withdrawals because they might run out of liquidity due to staking (which you said is equivalent to a "crappy loans / bonds business"). However, staking is not equivalent to a "crappy loans / bonds business". To argue that point, someone said that "Staking is not a loan", implying that unlike loans you can't lose money because of staking, but you said "it's totally a bond" because, I suppose, you're not allowed to get the money back until a certain time. However, I think that you are missing the fact that unlike with loans and bonds, there is no risk of running out of liquidity because of staking. If Coinbase and Binance were operating a real loans and bonds business (like banks do), and suddenly all customers demanded their deposits back, these exchanges couldn't force the borrowers to pay back their loans/bonds immediately so that they could fulfill the withdrawal demand. Not to mention that if the borrowers went bankrupt, the money would be lost, which would lead to Coinbase and Binance potentially losing customer funds, also becoming bankrupt and suspending withdrawals. This seems to be more or less what is happening with some of these exchanges that are running out of liquidity, because they seem to be essentially gambling with customer funds. But I think in staking it's completely different, because, as I argued, in staking there is no risk that borrowers go bankrupt and default on the loan/bond, as there are no borrowers. Instead, the yield is financed through inflation and the staked coins remain your property throughout the whole staking process -- nobody can spend them, so there is no risk that they can't be payed back. And on top of that, customers aren't allowed to withdraw the staked amount until the staking expires, so there is no risk that Coinbase and Binance can't fulfill withdrawals because of staking. Which means there is no risk of running out of liquidity because of staking. In fact, coins can only be staked if the customer decides to stake them. Which is also completely unlike the loans/bonds business, which happens behind the customer's back, essentially. The latter leads to broken customer expectations (and ruined lives) if/when the loans/bonds business goes under. Well, that's my understanding at least, but I'm sure I may be missing some points as I'm not actually an expert (or anything close to it) on staking.
dibt 4y ago
I think the confusion is that they believe the token that is staked is a sunk cost, the same way a business would spend the money from a loan. Like you said, the token will be returned when unstaked. If I take a loan out to buy and run a pizza restaurant, I can't just give the principal back if it fails. I would have to liquidate the business, which would not be equivalent to the starting capital costs.
- dragontamer 4y ago
  The Fed always can return the money, because they control how much money is printed. Therefore, the money loaned to the Fed through the overnight rate is risk-free. That's why its called the risk-free rate. It may only be a singular day worth of bond / IOU, but its still a loan/bond/debt instrument. ------- Similarly, the Ethereum rewards are printed out of thin air, are they not? By the Ethereum staking system? Its not like the Ethereum they print existed beforehand.