Who and Why Borrow Bitcoin?

blueraincap

blueraincap

I am not into crypto but often hear that it costs a lot (20%+) to borrow and can earn a lot to lend crypto. I know there is this staking thing or so that uses the chain's underlying token to verify stuff and rewards tokens accordingly, but besides that what's the point of paying ultra-high costs to borrow crypto except for shorting?

I mean there are so many lending platforms and I don't quite get why they exist and can offer such lucrative returns.
 
blueraincap said:
I mean there are so many lending platforms and I don't quite get why they exist and can offer such lucrative returns.
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Crypto borrow/lend is a huge business since you need capital to make markets in spot which is why a lot of firms borrow funds from Babel, Celsius, etc.

The business model is easy: You borrow funds from retail and pay them a decent return, then you lend it out to firms for a little bit more.

The risk is the duration mismatch aka you borrow from retail at 6% p.a. for a fixed term (one year) and lend it out to firms depending on market conditions on a variable term. If you're not making anything on your loans or if your credit defaults, you cannot repay your retail clients.

This is basically what happened to Celsius...and by the way duration mismatch was the number one factor every single investment bank either took a government bailout, got gobbled up by competition or went bankrupt during the GFC in 2008.

History repeats itself sometimes :)
 
MrMuppet said:
Crypto borrow/lend is a huge business since you need capital to make markets in spot which is why a lot of firms borrow funds from Babel, Celsius, etc.

The business model is easy: You borrow funds from retail and pay them a decent return, then you lend it out to firms for a little bit more.

The risk is the duration mismatch aka you borrow from retail at 6% p.a. for a fixed term (one year) and lend it out to firms depending on market conditions on a variable term. If you're not making anything on your loans or if your credit defaults, you cannot repay your retail clients.

This is basically what happened to Celsius...and by the way duration mismatch was the number one factor every single investment bank either took a government bailout, got gobbled up by competition or went bankrupt during the GFC in 2008.

History repeats itself sometimes :)
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Excellent post.
 
thing is those returns talked about are very high, so someone gotta be paying for that, I can't think of why would someone legit be paying 2-digit yield to borrow tokens
 
blueraincap said:
thing is those returns talked about are very high, so someone gotta be paying for that, I can't think of why would someone legit be paying 2-digit yield to borrow tokens
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There is no reason. That's why the whole nested chain of Ponzi schemes is toppling over as we watch it happen live.
 
zdreg said:
Is that any different than what people pay for debts on their credit cards
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they borrow USD to buy non-USD, then pay back USD later.
here, they borrow BTC to buy more BTC or other tokens? and then pay back BTC? It is simply margin trading
 
A lot of these returns are just a
Ponzi. You get interest in their own token, which costs them nothing to mint. And until they blow up you can sell these tokens for USDT (another fraud btw) and then transfer and cash out.

BTC and blockchain are real, their current valuation is biggest financial fraud the world has ever seen in its entire existence.

Luna is a good example, out of nothing they hyped it to 60 billion market cap. Think about this staggering number, 60 BILLION. And within 3 days it was all wiped out.
 
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