Interest payments for crypto (>3%) or USD Stablecoins (>8%)

Just wanted to share this tip (in light of the recent crypto run-up).

If you hold BTC, Ether, etc you can earn >3% interest (full list: https://blockfi.com/rates/?ref=ba8ae551). I only learned recently about this but so far I am quite please with the outcome so far:

Bildschirmfoto 2021-02-21 um 20.52.15

Why?

  • You HODL crypto anyway … make these coins work for you :slight_smile:
  • Interest is paid monthly (that allows for additional compounding)
  • The monthly payments can stay in the respective currency or you can average into a single currency (earn interest on BTC, ETH, etc and invest the whole monthly interest automatically in X coin)
  • You can earn 8.6% interest rate on USDC (this is HUGE for me … I converted my USD cash to USDC which is a stable coin and earn now way above market)
  • Sign-up with Swiss ID worked perfectly fine and deposit/withdrawal were processed quickly

Why not?

  • It is a centralized exchange and could get hacked (however, they work with Gemini / cold storage, etc)
  • You might find Defi platforms that pay even higher interest rates (I found this way too complicated and I like the simplicity of this platform)

Sign up here: https://blockfi.com/?ref=ba8ae551

[This is a ref link - every person that signs up using this referral code and deposits $100 or more, we both will each earn $10 in BTC]

A big why not: it’s like p2p lending, if the rate is much higher than the risk free rate, you’re taking extra risk. Do you know what the risk is and are you compensated fairly?

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Yes, the crypto portion of mine is anyhow fun money (meaning I am ok if it goes to 0) … only the cash portion is something I am sensitive to and there I was OK to deposit after reading a bit about the company / investors / etc. How BlockFi Handles Risk and Security

Maybe as a comparison, check which US bonds give you the same return, probably should give you an idea of the underlying risk. (I’d guess it’s pretty low quality bonds)

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Title is a bit misleading, I understand USD coins have an interest paid, but not the fiat currency.

Re. risk, it’s crypto so you’re exposed to coin fluctuations, regulation, fraud, bankruptcy, hacking, loss of wallet, etc. - your assets are not covered under any protection plan.

Question: assuming one has USD laying around, how does the 8.6% rate (calculated, by the way, assuming compounding and ignoring fees) beat investing the fiat currency in a “safe” ETF which has similar performance? On one side (ETF) you have market risk but the asset is yours and relatively liquid, SIPC, etc., on the other side you’re converting to coin (they charge ca. 1%) and have the risks exposed above. I’m being open minded here, please bring forth the argument :slight_smile:

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Have you tried their credit card?

Another take on the same concept: https://compound.finance/

I would be very careful with this type of offer. It’s like p2p quite risky.

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Blockfi is more sophisticated than other p2p and is really interesting in many aspects. To give you an idea, they raised $160m, have $10b under management and partnerships with Fidelity, Grayscale, Gemini, Coinbase, etc. pretty solid.

Now regarding the interest rate, what happens is:

  1. You lend your BTC to Blockfi to get high-interest rate
  2. Blockfi lends it to hedgefunds
  3. Hedgefunds do their things to capture the small spread of BTC volatility
  4. Everyone is happy and making money :slight_smile:

Why would you lend your BTC, to begin with? Because if you need working capital for some reason, you will have to sell your BTC and get hit by a capital gain tax of around 20-30% (generally speaking in many countries). And on top of that, you have lost your BTC…double pain…

So lending your BTC or placing them to get high-interest rates become very natural. You keep your BTC (i.e. you have a long position) and you benefit from a favorable tax code for debt financing (generally speaking again).

I personally use Hodlhodl because I am in favor of decentralization. From what I observe there, the average APR is around 16%. I have lent twice for 60% APR and I have borrowed once at 20% APR. Game theory economics are beautiful.

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The economics aren’t there tho (at least for the stable coins).

Why get a loan at 11% (esp. hedge funds), when margin rates are typically in the 2-3% at most? If you pay more for a loan, it means you’re doing something risky with it and there’s a risk of default (or some other risk I don’t understand), that risk holds similarly to the lender.

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11% would be for the retail, I don’t know what hedge funds negotiate behind closed doors. But if fidelity is part of it, I trust they did the math.

And rate doesn’t translate necessary into risk, if you pay 11% in interest rate to avoid 30% capital gain tax when selling your btc (like in France I think), I would say it works pretty well.

Also, you will get your money faster and without questions compared to traditional banking.

@nabalzbhf Yes, I think so. @Oliv actually explains it quite well – there are a lot of rich crypto holders that want to borrow against BTC, etc and either want more BTC or USD. Banks won’t lend to those foljs – since they don’t accept such crypto as good collateral. That is where Blockfi and others come in.

All in all, this isn’t risk free but certainly much less risky than some crazy junk bond that would pay >8-10%

I think it is currently only available in the US

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Well USD Coins are stable by design … you can see for yourself: https://www.coinbase.com/de/price/usdc (just make sure to show USD - not CHF or EUR). The whole idea is that one USDC equals always 1 USD.

USDC is backed by Coinbase which is going public in a few weeks and has billions under managements. Good enough for me :slight_smile:

So it’s borrowing against an extremely volatile asset, no wonder the rates are high :slight_smile: I definitely wouldn’t count as a guaranteed return. Anyway as usual make sure you understand where the extra return comes from, there’s no free lunch.

This part I am sure, the intermediary did the math and are always the winners :slight_smile:

I read only a few headlines so I am not 100% sure on what I am about to say but would love it if you guys could share some resources.

If I understand it correctly people are pledging their bitcoin/other crypto assets and getting 60-80% USD/crypto of the pledged value.

What happens if we see a 30% correction? Is there a margin call?

Yes, exactly they would do a margin call and sell their collateral.

The CEO talks about it in more detail here: Bitcoin Lending and Borrowing w/ Blockfi's Zac Prince & Mark Yusko

I give you a random example to make it simple:

  • You want to borrow 50k USD in a stablecoin of your choice
  • You will put your btc as a collateral to secure the lender (let’s assume the btc is worth $50k too)
  • But to provide extra reassurance to the lender and because of the volatility, you will put 1.5x the amount you are trying to borrow
  • if there is an important correction and you collateral is decreasing in value, either you will be ask to add some more btc or the deal will be terminated and the lender will receive the right amount of btc as a compensation.

There is no surprise, everything is transparent and agreed with contract terms. You get notification if the ratio collateral / amount borrowed is decreasing.

And as a volatile asset, what if this moves too quickly to close the margin positions? From what I’ve seen of all those platform they obviously make not guarantee you’ll see 100% of the amount you lend (if they do, please point to the ToS I’d be interested to see how that works, while still providing such a high interest rate, since it would be kinda making it free money at no risk which breaks a lot of finance).

So that just the platform I am personally using, I guess Blockfi is similar in nature. You can check the forces liquidation close here: Liquidation

As a lender you are protected by the over collateralization and the liquidation mechanism.

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