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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

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.

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.