The biggest crypto lending company is a ponzi scheme • Hacker News Board

Re: The biggest crypto lending company is a ponzi scheme

#311

Post by kristjansson » Thu, Dec 09, 2021, 5:16 PM UTC

The clearest non-scam answer I’ve found for ‘who the hell is funding these APYs’ is fiat denominated loans against BTC, ETH et al. People with long, appreciated crypto positions want to take profit/add leverage, so they borrow stable coin against crypto at substantial rates, collateralized by the crypto. As long as crypto goes up and to the right, borrower is in the green, can pay interest with some of the borrowed stablecoin (or in the underlying crypto asset) and has some nice stuff. This demand for fiat denominated borrowing can be seen in the differential rates offered to BTC/ETH/… depositors vs stablecoins. An order of magnitude difference in favor of the stablecoin is not unlikely.

The lender is basically long the underlying asset, which they could pay to hedge (likely impairing their 10-20% APY) or just hold, since crypto only goes up. The stablecoin depositor is ‘risk free’ in the sense that loans are secured against other crypto, but exposed to massive exchange rate risk. In a year 2BTC recovered from a default on 100k USD might be pittance or a windfall, but I wouldn’t take a strong position on which, at least not for 1200bps.

In general one wonders how many of these 10-20% APY crypto things are just mis-priced exchange rate risk/exposure. A hypothetical protocol/coin minting 10% if it’s overall volume per year would have no problem paying 10% nominal APY to holders. But, like investing in a bond issued in an foreign, inflating currency, one would expect the exchange rate to decline enough consume most of the nominal yield, leaving some real yield proportional to the other underlying risks. If the mechanism is sufficiently obscured, or lost in the frothy demand , borrowers might actually get outsized returns, for a while. If it’s not, they might be surprised when they try to take profit in fiat.

This is compounded by PoS systems where there are real rewards minted by holders to compensate for the costs of maintaining the network.

Re: The biggest crypto lending company is a ponzi scheme

#312

Post by notahacker » Thu, Dec 09, 2021, 5:17 PM UTC

hackingforfun wrote: post #244

notahacker wrote: post #218

Earlier quoted context omitted.

Yep. Stability is really the only gap in the market for a "store of value". Shares are fairly fungible and have a "number go up" tendency as well, but there's actual reason for their numbers to go up other than convincing more people to believe they're a share of value than believed last year.

I have heard Metcalfe's Law applied to crypto networks, and I think it actually does make sense. I.e. as the number of participants goes up, the value increases, similar to how as the number of users goes up on a social media or other technology platform, those networks are considered more valuable. Crypto is a technology so I think it makes some sense to apply the same framework.

Crypto doesn't claim to be a telecoms network, it claims to be an asset. If you double the number of people owning stocks, or bond or oil, it doesn't make the stock, bond or oil four times as valuable as before. It simply updates the market value of stock, bond or oil to whatever the new users paid for it - which might even be less than before (whilst the use value of collecting the dividends or coupon payments or burning the oil to individual end users doesn't tend to change much in response to more people using it at all)

And even if we grant a Metcalfe exponential relationship between crypto prices and crypto participants, you're still running into the basic Ponzi scheme problem that if all your value comes from the price appreciation predicated on the number of HODLers growing, it'll hit that ceiling eventually. Which means it isn't a particularly great store of value, compared with something like a stock that generates future income regardless of whether new people enter the stock market or not

Re: The biggest crypto lending company is a ponzi scheme

#313

Post by rodiger » Thu, Dec 09, 2021, 5:17 PM UTC

AnIdiotOnTheNet wrote: post #238

rodiger wrote: post #107

Earlier quoted context omitted.

It's more about the token than the JPEG. Gated experiences, communities, in-game items, in-game art, etc is the driving force. And for digitally-native art, there's never been a better way to sell/trade it while preserving provenance. People are betting on the fact that we'll spend more and more of our time in digital spaces, and I don't think that's necessarily a bad bet.

> Gated experiences, communities, in-game items, in-game art, etc is the driving force. It is incredibly sad that anyone is working towards a future where a post-scarcity space is fully subdued by artificial scarcity.

Agree to disagree- I think the incentives are better aligned for creators and it will create a much more vibrant digital space.

Re: The biggest crypto lending company is a ponzi scheme

#314

Post by jerrygoyal » Thu, Dec 09, 2021, 5:18 PM UTC

_xnmw wrote: post #202

For those who believe "crypto is too big to fail", or the genie is out of the bottle, or that crypto concepts have become so engrained and popular that it's not possible to stop, I'd like to point out that Bernie Madoff's Ponzi scam lasted for 30+ years. People built entire lives on his very professional-seeming "business". Scams can go on for a very long time, and very large numbers of people can build their whole l…

For those who don't know Bernie Madoff was an American financier who executed the largest Ponzi scheme in history, defrauding thousands of investors out of tens of billions of dollars over the course of at least 17 years, and possibly longer. He was also a pioneer in electronic trading and chairman of the Nasdaq in the early 1990s.

Re: The biggest crypto lending company is a ponzi scheme

#315

Post by ricardobayes » Thu, Dec 09, 2021, 5:18 PM UTC

_xnmw wrote: post #202

For those who believe "crypto is too big to fail", or the genie is out of the bottle, or that crypto concepts have become so engrained and popular that it's not possible to stop, I'd like to point out that Bernie Madoff's Ponzi scam lasted for 30+ years. People built entire lives on his very professional-seeming "business". Scams can go on for a very long time, and very large numbers of people can build their whole l…

Same here, even though it's increasingly hard. All my friends say I'm stupid to choose to leave out.

Re: The biggest crypto lending company is a ponzi scheme

#316

Post by ricardobayes » Thu, Dec 09, 2021, 5:20 PM UTC

delabay wrote: post #284

_xnmw wrote: post #202

For those who believe "crypto is too big to fail", or the genie is out of the bottle, or that crypto concepts have become so engrained and popular that it's not possible to stop, I'd like to point out that Bernie Madoff's Ponzi scam lasted for 30+ years. People built entire lives on his very professional-seeming "business". Scams can go on for a very long time, and very large numbers of people can build their whole l…

Crypto speaks to aspects of humanity which people hold near and dear. Crypto no doubt harbors shady characters, ponzi schemes, scams. You also can't deny that there are ideas which threaten state control, monetary policy, nationalistic ideals, religion its self. Just look at the magnitude of the conversation. Its easy to dismiss me as the ramblings of somebody caught up in the scam. But when has it been a good idea t…

There is nothing wrong with the global financial system. I can already send money electronically to anyone by way of bank transfer. In Europe, it's even easier, faster and cheaper than sending crypto.

Re: The biggest crypto lending company is a ponzi scheme

#317

Post by monopoledance » Thu, Dec 09, 2021, 5:21 PM UTC

delabay wrote: post #284

_xnmw wrote: post #202

For those who believe "crypto is too big to fail", or the genie is out of the bottle, or that crypto concepts have become so engrained and popular that it's not possible to stop, I'd like to point out that Bernie Madoff's Ponzi scam lasted for 30+ years. People built entire lives on his very professional-seeming "business". Scams can go on for a very long time, and very large numbers of people can build their whole l…

Crypto speaks to aspects of humanity which people hold near and dear. Crypto no doubt harbors shady characters, ponzi schemes, scams. You also can't deny that there are ideas which threaten state control, monetary policy, nationalistic ideals, religion its self. Just look at the magnitude of the conversation. Its easy to dismiss me as the ramblings of somebody caught up in the scam. But when has it been a good idea t…

> You also can't deny that there are ideas which threaten state control, monetary policy, nationalistic ideals, religion its self.

Phew. Yeah, we all felt that. In 2010.

Now while we're reminiscing the past, I know another one! Lets provocatively ask: Isn't the colossal energy wasting worth freedom and all? - So exciting, wasn't it? And don't get me started on Wikileaks donations!

Reality has moved on, and nothing screams ponzi scheme more, than followers repeating decade old talking points, aged like milk, into dogma. Lol, I am pretty sure the vast majority of people doesn't even want that idea of ancap freedom, unregulated markets and tax evasion.

Re: The biggest crypto lending company is a ponzi scheme

#318

Post by kristjansson » Thu, Dec 09, 2021, 5:28 PM UTC

anonymoushn wrote: post #31

prepend wrote: post #8

This seems so common to me and it’s surprising how many of these ventures are around. And that they haven’t busted yet. I looked at these a few years ago when the 5%+ returns started popping up and they are all unregulated, not fdic insured, and seem to survive on bitcoin’s ever increasing rise. If these returns were true then institutional investors would use them. But they do seem like they should have collapsed ye…

> If these returns were true then institutional investors would use them. But they do seem like they should have collapsed years ago. After trying to raise money for arb strategies with higher returns than Celsius all year I'm really tired of hearing this.

Rate arb is the just about the most reasonable way to make money that I can imagine. Seems like execution is the hard part though, what's your system like?

Re: The biggest crypto lending company is a ponzi scheme

#319

Post by hackingforfun » Thu, Dec 09, 2021, 5:31 PM UTC

notahacker wrote: post #312

hackingforfun wrote: post #244

Earlier quoted context omitted.

I have heard Metcalfe's Law applied to crypto networks, and I think it actually does make sense. I.e. as the number of participants goes up, the value increases, similar to how as the number of users goes up on a social media or other technology platform, those networks are considered more valuable. Crypto is a technology so I think it makes some sense to apply the same framework.

Crypto doesn't claim to be a telecoms network, it claims to be an asset. If you double the number of people owning stocks, or bond or oil, it doesn't make the stock, bond or oil four times as valuable as before. It simply updates the market value of stock, bond or oil to whatever the new users paid for it - which might even be less than before (whilst the use value of collecting the dividends or coupon payments or bu…

Aren't social media networks like Facebook/Meta and Twitter valued higher as an increasing number of users join the network? Or new startups trying to get more users? Do you consider those ponzi schemes? Also, I'm just wondering, do you like tech stocks? And do you think high P/E ratios would be possible if new investors weren't buying those stocks?

Also, if there's not enough Bitcoin ever going to be created for everyone alive even now to own just one (21 million max supply cap), and assuming the interest in it only increases over time, how would a ceiling ever be hit?

Re: The biggest crypto lending company is a ponzi scheme

#320

Post by notahacker » Thu, Dec 09, 2021, 5:31 PM UTC

bglusman wrote: post #283

dustintrex wrote: post #175

Earlier quoted context omitted.

> Well a lot of it is coming from incentives of these protocols I keep seeing this for DeFi. - So you put 1 fiat into the magic box, and 2 fiat comes out. Where did the 1 fiat profit come from? - DeFi collateralized staking algorithms hash protocol incentives! - Yeah whatever but no really, it's a closed system so all inputs and outputs need to sum up, where did the new fiat come from? - YoU dOnT uNdErStAnD cRYpTo!!1…

I think you may have just also described fractional reserve banking? that is literally where much of the money supply comes from. https://en.wikipedia.org/wiki/Fractional-reserve_banking

Except of course, that the crypto world insists that all these cryptoinvestors borrowing crypto to buy other crypto to sell for more crypto to repay their original crypto debt is an ecosystem which isn't [even more] dependent on inflation of the crypto supply.

That and unlike stablecoins the Fed doesn't pretend it's fully backed.