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This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years). It's hard to have empathy for these people

This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years). It's hard to have empathy for these people when they've been so obnoxious up until now to anyone trying to help them with learned experience. Assuming you're not running an outright Ponzi scheme, then when you increase interest rates, you lower your borrower quality by the same amount, meaning your risk increases by at least the same ratio (or more). By taking 8% interest or more, during a period of historically low interest rates, you were lending to the least reliable borrowers in existence - those borrowers that absolutely everyone lending money at lower rates said no to or, even worse, shady gamblers who can't legitimately draw finance from the traditional financial system without raising alarm bells. There's no surprise in this outcome to anyone with even a basic understanding of maths and/or economics. It's sad, but utterly predictable.

adabyron 4y ago
I got crushed percentage wise but only stuck a few hundred dollars in to P2P lending in the early 2000's before my state & many others made it illegal. I could understand the risk in that situation though. With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%. In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates. Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.
- Robin_Message 4y ago
  I'm not a crypto user, but charging 10% to swap one set of bits for another doesn't seem like a viable business model.
  - adabyron 4y ago
    The numbers are all over the place. Just an FYI, 10% in this context is APY or the return after letting it sit for a year. It's not 10% each transaction. I believe each cryptocurrency has their own fees & they're all very different. I think many are fixed fees, so the percentage varies depending on how large of a transaction you're doing.
- andruby 4y ago
  Why would an exchange need to borrow money from you to allow transactions? Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.
  - adabyron 4y ago
    The reasoning I understood was to provide liquidity of currencies, not money in general. So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else. I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity. I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.
hn_throwaway_99 4y ago
> This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years). Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here: 1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates. 2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments. Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.
- adabyron 4y ago
  Prosper! That's the name of the place that took my poor money. This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.

adabyron 4y ago

I got crushed percentage wise but only stuck a few hundred dollars in to P2P lending in the early 2000's before my state & many others made it illegal. I could understand the risk in that situation though. With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%. In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates. Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.

Robin_Message 4y ago
I'm not a crypto user, but charging 10% to swap one set of bits for another doesn't seem like a viable business model.
- adabyron 4y ago
  The numbers are all over the place. Just an FYI, 10% in this context is APY or the return after letting it sit for a year. It's not 10% each transaction. I believe each cryptocurrency has their own fees & they're all very different. I think many are fixed fees, so the percentage varies depending on how large of a transaction you're doing.
andruby 4y ago
Why would an exchange need to borrow money from you to allow transactions? Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.
- adabyron 4y ago
  The reasoning I understood was to provide liquidity of currencies, not money in general. So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else. I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity. I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.

hn_throwaway_99 4y ago

> This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years). Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here: 1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates. 2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments. Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.

adabyron 4y ago
Prosper! That's the name of the place that took my poor money. This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.