Crypto lending still promises a 5-10% yearly return. How is this possible?
Decentralized lending and staking are the most rapidly growing sectors of the booming DeFi ecosystem, and the latest trends in the crypto industry. Lending means users giving their crypto holdings via loans and receiving interest Payments (usually in the same numeraire). Exclusive to the cryptocurrency world, staking implies users locking their cryptocurrency to receive rewards.
Having started after the peak of the Bitcoin bubble, today this crypto debt mechanism is in full bloom. Just like bank deposits, it offers passive income, allowing anyone to post the asset and to collect interest. Most accounts offer very competitive interest rates, especially compared to the traditional banking system. At a time of rapid money printing, with negative interest rates becoming the new normal, DeFi lending and staking rates of 10%+ look like a great deal.
Here comes the paradox. Usually, debt pays interest because it is invested in a concern that will generate actual returns. It makes money and repays the debt, including interest and the principal amount. Today the average interest rate in the real economy is close to zero for the simple reason that we are in the mother of all contractions, due to COVID-19. Yet, crypto lending still promises a 5-10% yearly return. How does this work?
The price of a crypto asset is usually derived from the supply and demand in the exchanges. Cryptos have no endogenous cash flows, and as such holding the asset (as opposed to selling it), is the one thing that can push
the price up. The principle of HODLing is elevated to the status of a mantra in crypto for this reason. Everyone HODLs, all the time. That is why staking is such an integral part of the Blockchain ecosystem: it is an incentive for people to hold the asset.
Here is the trick. On the face of it, this is an unbeatable deal. Who can resist this kind of return when the real market is not paying anything? It is a play taken from the classical markets: corporations take cheap debt which they use to buy their own equity. The debt drives equity. This cash for equity loop fuels the mother of all rallies.
We are essentially trying the same in crypto. Debt in BTC can be used to buy more crypto products, so the interest really serves to smooth the volatility of the underlying equity asset. Follow this math: a company pays out 8% interest a year for 5 years, that is 40%. If the asset you buy with it rallies 100% (BTC 20k within 5 years is probable – look at the recent spike in price), you can keep the difference.
Of course, magic is the illusion, but the illusion only works until it does not. If the underlying asset performs above the rate of return of the loan then you are all good, on both sides (the equity and the debt). If not, you are in default. So basically, the debt carrier is carrying debt type returns for an equity-type risk.
But hey, it is debt, even deposits! (“My bank account does not offer 5% on deposits” – well that is because the product you hold is not a deposit but a proxy play to more equity).
The thing is, this staking DeFi approach inevitably will not work in many cases, since crypto, the primary asset bought with the proceeds, does not always go up. Just like debt in the public markets is repaid if the underlying equity is working above the real rate of return. It might, and then everyone is happy. If it does not, oh well, tough luck right?
Or, is there another way for crypto than a bet on non-stop growth, which one may call naive and shortsighted? There is: blending features of asset-backing with a finite supply, as the new stable growth asset class is doing, is a much more effective way to HODL and grow wealth safely.
Decentralized lending and staking are the most rapidly growing sectors of the booming DeFi ecosystem, and the latest trends in the crypto industry. Lending means users giving their crypto holdings via loans and receiving interest Payments (usually in the same numeraire). Exclusive to the cryptocurrency world, staking implies users locking their cryptocurrency to receive rewards.
Having started after the peak of the Bitcoin bubble, today this crypto debt mechanism is in full bloom. Just like bank deposits, it offers passive income, allowing anyone to post the asset and to collect interest. Most accounts offer very competitive interest rates, especially compared to the traditional banking system. At a time of rapid money printing, with negative interest rates becoming the new normal, DeFi lending and staking rates of 10%+ look like a great deal.
Here comes the paradox. Usually, debt pays interest because it is invested in a concern that will generate actual returns. It makes money and repays the debt, including interest and the principal amount. Today the average interest rate in the real economy is close to zero for the simple reason that we are in the mother of all contractions, due to COVID-19. Yet, crypto lending still promises a 5-10% yearly return. How does this work?
The price of a crypto asset is usually derived from the supply and demand in the exchanges. Cryptos have no endogenous cash flows, and as such holding the asset (as opposed to selling it), is the one thing that can push
the price up. The principle of HODLing is elevated to the status of a mantra in crypto for this reason. Everyone HODLs, all the time. That is why staking is such an integral part of the Blockchain ecosystem: it is an incentive for people to hold the asset.
Here is the trick. On the face of it, this is an unbeatable deal. Who can resist this kind of return when the real market is not paying anything? It is a play taken from the classical markets: corporations take cheap debt which they use to buy their own equity. The debt drives equity. This cash for equity loop fuels the mother of all rallies.
We are essentially trying the same in crypto. Debt in BTC can be used to buy more crypto products, so the interest really serves to smooth the volatility of the underlying equity asset. Follow this math: a company pays out 8% interest a year for 5 years, that is 40%. If the asset you buy with it rallies 100% (BTC 20k within 5 years is probable – look at the recent spike in price), you can keep the difference.
Of course, magic is the illusion, but the illusion only works until it does not. If the underlying asset performs above the rate of return of the loan then you are all good, on both sides (the equity and the debt). If not, you are in default. So basically, the debt carrier is carrying debt type returns for an equity-type risk.
But hey, it is debt, even deposits! (“My bank account does not offer 5% on deposits” – well that is because the product you hold is not a deposit but a proxy play to more equity).
The thing is, this staking DeFi approach inevitably will not work in many cases, since crypto, the primary asset bought with the proceeds, does not always go up. Just like debt in the public markets is repaid if the underlying equity is working above the real rate of return. It might, and then everyone is happy. If it does not, oh well, tough luck right?
Or, is there another way for crypto than a bet on non-stop growth, which one may call naive and shortsighted? There is: blending features of asset-backing with a finite supply, as the new stable growth asset class is doing, is a much more effective way to HODL and grow wealth safely.
Bitget's Bitcoin Reserve Ratio Soars Over 300% Following Halving
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
📸 Instagram: https://www.instagram.com/fmevents_official
🐦 Twitter: https://twitter.com/F_M_events
🎥 TikTok: https://www.tiktok.com/@fmevents_official
▶️ YouTube: https://www.youtube.com/@FinanceMagnates_official
Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
📸 Instagram: https://www.instagram.com/fmevents_official
🐦 Twitter: https://twitter.com/F_M_events
🎥 TikTok: https://www.tiktok.com/@fmevents_official
▶️ YouTube: https://www.youtube.com/@FinanceMagnates_official
Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
📸 Instagram: https://www.instagram.com/fmevents_official
🐦 Twitter: https://twitter.com/F_M_events
🎥 TikTok: https://www.tiktok.com/@fmevents_official
▶️ YouTube: https://www.youtube.com/@FinanceMagnates_official
Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
📸 Instagram: https://www.instagram.com/fmevents_official
🐦 Twitter: https://twitter.com/F_M_events
🎥 TikTok: https://www.tiktok.com/@fmevents_official
▶️ YouTube: https://www.youtube.com/@FinanceMagnates_official
Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/company/financemagnates/
👍 Facebook: https://www.facebook.com/financemagnates/
📸 Instagram: https://www.instagram.com/financemagnates_official
🐦 X (Twitter): https://twitter.com/financemagnates/
📡 RSS Feed: https://www.financemagnates.com/feed/
▶️ Telegram: https://t.me/financemagnatesnews
Don't miss out on our latest videos, interviews, and event coverage.
🔔 Subscribe to our YouTube channel for more!🔔
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/company/financemagnates/
👍 Facebook: https://www.facebook.com/financemagnates/
📸 Instagram: https://www.instagram.com/financemagnates_official
🐦 X (Twitter): https://twitter.com/financemagnates/
📡 RSS Feed: https://www.financemagnates.com/feed/
▶️ Telegram: https://t.me/financemagnatesnews
Don't miss out on our latest videos, interviews, and event coverage.
🔔 Subscribe to our YouTube channel for more!🔔
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/company/financemagnates/
👍 Facebook: https://www.facebook.com/financemagnates/
📸 Instagram: https://www.instagram.com/financemagnates_official
🐦 X (Twitter): https://twitter.com/financemagnates/
📡 RSS Feed: https://www.financemagnates.com/feed/
▶️ Telegram: https://t.me/financemagnatesnews
Don't miss out on our latest videos, interviews, and event coverage.
🔔 Subscribe to our YouTube channel for more!🔔
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/company/financemagnates/
👍 Facebook: https://www.facebook.com/financemagnates/
📸 Instagram: https://www.instagram.com/financemagnates_official
🐦 X (Twitter): https://twitter.com/financemagnates/
📡 RSS Feed: https://www.financemagnates.com/feed/
▶️ Telegram: https://t.me/financemagnatesnews
Don't miss out on our latest videos, interviews, and event coverage.
🔔 Subscribe to our YouTube channel for more!🔔