Something is off in USDC land though: https://news.bitcoin.com/usdc-attestations-run-late-raising-...

The March attestation was published 5/24 (the day prior to that article) and is available on the Centre website[1]. It doesn’t appear there’s cause for alarm in this case.

[1] https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...

Except the attestations have stopped saying how much cash they have in their accounts and now just say that Cricle _claim_ they have enough assets to cover the liabilities.

This is a HUGE change and massively cause for alarm.

Probably no depositor insurance but whatever.

Note that apparently attestations just validate that a certain bank account had a certain number at a certain time, which obviously does not account for loan obligations. In Tether's case

> https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...

> [Tether was] Failing to complete an audit and settling on an attestation “for transparency”. The morning of the attestation, tether moved $380m from sister company bitfinex into a bank account to pass the verification

That site is generally not a trusted news source. I'd follow that link up with something else.

OK: https://www.centre.io/usdc-transparency It's now June and they haven't published information for April 31st.

I hold a decent sized block of USDC via BlockFi and earn 8.6% APY. I realize there is inherent risk (after all, I am earning 8.6%) but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts and it's a risk I am willing to take. By default, BlockFi issues GUSD as their stablecoin of choice, but Gemini (GUSD) market cap is only $145m, whereas USDC market cap is 22 with a B billion. Ultimately, I always swap all my crypto "cash reserves" from the default Gemini GUSD to USDC.

I stay away from Tether completely as it has a shaky past and unknown ties with China and exchanges.

At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year? Considering that it would take over a decade to return the original capital in value, I feel that the compensation is low relative to the risk of loss. Ten years is a lot of time for a company to bungle your funds, especially in the cryptocurrency world.

BlockFi says they are lending at 4.5% and accepting deposits at 8.5%. What's wrong with this picture?

It makes more sense if you look at these rates:

https://blockfi.com/rates/

To qualify to borrow at 4.5%, you have to have a loan to value ratio of 20%. If I understand correctly, that means you have to deposit 5x crypt than the value of the loan.

On the savings side, the rates vary. If you deposit BTC, you earn 5% for the first 0.5 coins, 2% for the next 19.5 coins, and 0.5% for the rest.

Since the loans are secured, if the value of bitcoin does not move too much they can cover defaults by liquidating the collateral. Given the volatility of crypto currencies though, I still assume they will blow up at some point in the future.

They claim that if you deposit USDT, they pay 8.5%/year.

They're effectively speculating that Tether will crash, and they get to pay you back with cheap Tethers.

Let me get this straight: you can lend from BlockFi, deposit it straight back, and make a 4% profit?

Ever heard of Flash Loan Attacks? https://coinmarketcap.com/alexandria/article/what-are-flash-...

No, you don't earn interest on the collateral.

> Considering that it would take over a decade to return the original capital in value

I think only 8.4 years, because that's the doubling period for 8.6% (1.086^8.4 ≈ 2).

Edit: but I guess it's indeed over a decade if you take tax into account

>At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year?

Those 8.6% APY are only available for a month at most. The APY changes all the time as more people deposit their money.

Not true at all. 8.6 has been stable for over a year. It is also very very low compared with what you can get in DeFi (which is arguably higher risk).

Sub 8.6% chance of funds disappearing? Absolutely! Listen, I'm no Berkshire Hathaway, but the likeyhood that BlockFi one of the world's largest holders of BitCoin and backed by $500+ million in VC funding just outright fails is very very low.

I know, here come the Enron or Mt. Gox rebuttals. The regulation and oversight that BlockFi has is much greater than those other examples.

It would be interesting if somebody could figure out the likelihood that BlockFi fails. Though I don't see how.

Given that the 8.6% return is contingent on those funds being loaned out to third parties in a manner that involves risk (like margin trading), I am highly skeptical of their ability to not lose your money on the timeline of a decade. The trustworthiness of Blockfi doesn't matter if they mess up and end up loaning money to someone who ends up unable to pay the bill - and the person on the hook if the borrower does not pay is the lender of the capital. Not Blockfi. Why do you think the interest rates are so juicy?

If it was as safe as you seem to think it is, why didn't they just pony up their own money? 8.6% is far above any standard investment vehicle at the moment. For a safe investment, it's free money!

The thing is though that most all of these crypto lending platforms only offer over collateralized loans, so the risk of them being screwed over by lack of payment from the person taking the loan is negligible. Meaning If I want to lend $100 worth of USDC I must give $200 as collateral worth of BTC to get the loan. Where if that $200 worth of BTC drops to a worth of $100, it's liquidated, paying off your loan, leaving the lender with no outstanding loan and the loan taker with the $100 worth of USDC still, but no longer their BTC. (this would trigger a Capital gains event too, as the BTC was effectively sold.)

These types of loans of course aren't useful for most people in the traditional sense where somebody needs access to money they don't have. These are mostly for 2 cases: 1) Exposure to other crypto when you think both your collatoral and the crpyto you want to be lent will both be worth more. SO you borrow $100 worth of USDC, give $200 BTC as collatoral, use the $100 USDC to buy $100 worth of ETH. SO if after a month ETH and BTC have gone up, you can sell enough to pay the $100 USDC loan and keep the profit.

2) Access to illiquid capital. If you have $1 million of BTC but don't want to sell it and trigger a capital gains event, you use that as temporary collateral to get access to something else, thus never selling your current crpyto holdings (unless they fall below the liquidate threshold of the loan)

I should say too, using these methods still has counter party risk regardless.

One extra detail. The liquidation price isn't equal to the loan principal, it's higher. So in your example $100 USDC loan with $200 BTC collateral will have the BTC sold once the value drops to $150 and the remaining BTC if any is returned. This is to reduce the chances of the price dropping below the principal before liquidation is complete.

The reason they require so much collateral is because the value of the collateral is highly correlated with the value of the investment, since both the investment and the collateral are in the form of crypto-assets, and crypto-asset prices tend to move together. This means, in the event of a crash in the crypto market, the probability of incurring losses from such a loan would not be negligible.

Then there's also foreign exchange risk. The return on these loans is quoted in terms of the currency the debt is denominated in, whereas what the investor cares about is the return of the investment in terms of their local currency. This is the same situation that an investor would face if they decided to buy Argentine bonds, which pay over 20% annually in pesos. The return that they would get in their local currency would likely be much smaller. It could even be negative.

Thank you! I've been trying for years to get someone to explain to me how DeFi loans make any sense whatsoever when they are all so over-collateralized. Your explanation helped put the pieces together a little bit. I still don't understand how the unit economics make much sense, but yeah.

Dollar yields in the crypto universe have forever been higher. I've consistently got 12-25% per year from 2015 using exchanges like Bitfinex and haven't lost a single dollar.

Why isn't it arbitrated away? Because institutions and market makers don't trust crypto. When they do, I'm sure it'll go as low as rest of market rates.

One of the reasons why the yields are higher for stable coins is they are not bound by central banks‘ interest rates. This is especially true for purely synthetic stable coins (DAI, sUSD, sEUR) because they don’t even need to be backed by the underlying asset.

The other reason is they cut the middle man between a creditor and debtor i.e. banks.

If banks started to sell financial products based on liquidity pools, they had a hard time to compete with places like compound or aave. However, they would set themselves free of the federal fund rate and therefore they could actually provide higher rates to their customers.

So basically, rates would be rising everywhere.

The fact that the yields are higher for stablecoins simply means borrowers of stable coins are paying more to borrow stablecoins than they would if the borrowed the underlying currency instead. It has nothing to do with middlemens or central banks's interest rates.

So why can’t banks provide higher yields with simple savings accounts? If it’s got nothing to do with federal fund rates or middle men?

Here in Europe banks are entering an existential crisis as the ECB maintains zero and negative interest rates (of course, this is simplified as there are actually several different federal funds). Banks can’t finance their business anymore. This led to increasing bank fees, bank mergers and basically bad service for their customers including no interest paid on savings.

Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.

> So why can’t banks provide higher yields with simple savings accounts? If it’s got nothing to do with federal fund rates or middle men?

Because banks are regulated (to avoid systemic risks), so they need to balance deposits with risk free loans (or discounting the riskier loans with extra capital).

> Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.

By definition if they provide higher yields, this should be because they are riskier. (It might be a non-obvious risk, e.g. liquidity risk due to lack of lender of last resort).

> they need to balance deposits with risk free loans

You mean "reserves". This is the reserve requirement of banks which they need to hold for deposits. These reserves are held by their responsible central bank. Which they need to pay for in the Euro zone (that's what it means federal fund rates being negative). So this gets me back to my initial point: Banks depend on the federal fund rates. DeFi systems do not.

But I agree with you, higher yields do reflect higher risks. Of course, depositing money in DeFi protocols is still riskier than leaving it on your bank. But bringing money to your bank means you're so risk averse you're willing to lose money for keeping your money. At least inside the Euro zone, currently.

> So why can’t banks provide higher yields with simple savings accounts?

Because yield is the price that borrowers pay for borrowing funds. When there are a lot of funds available for borrowing and not many people wanting to borrow yields will fall. There is just nothing central banks or commercial banks can do to raise yields if there is little demand for loans.

> There is just nothing central banks or commercial banks can do to raise yields if there is little demand for loans.

I am sorry but I think you've got this completely the wrong way. The demand for loans did not shrink in the last couple of years: Look at the housing prices (including the infamously high rents) and the volume of credits people burden themselves with. Rather, the amount of liquidity (i.e. money) circulating around has increased significantly. This pushed interest rates down to a minimum. And why is that so? It's because central banks are flooding the economy with money for years. So it is well within their power to change that. But it won't be nice for many parts of our inflated economies ...

This is not how banks operate. When a bank makes a loan, the bank creates a new deposit in its balance sheet, in effect creating new money out of thin air. [1] Most of the money in circulation is created by banks in this way. This means banks don't need liquidity to make loans, because they can create their own liquidity. And, yes, the demands for loans in the EZ crashed during the financial crisis and hasn't recovered ever since, which explains the low interest rates.

[1] https://en.wikipedia.org/wiki/Money_creation#Role_of_banks_i...

If it goes as low as the rest of market rates then what's the advantage? I think it'll stay higher.

Wag, a mobile app for finding dog walkers, received $300M in VC funding. It failed.

“Holds Bitcoin” and “received a pile of loose VC money” are not the gold standard of reliability in a financial provider that promises stable returns on a no-risk investment.

It doesn't make sense to compare risk-free FDIC-insured deposits to stablecoins at BlockFi.

Full disclosure: I did not find BlockFi's brief descriptions of their risk management strategies to be comforting.

What didn't you like about the risk management strategies?

It's all highly leveraged on all sides, margin calls will amplify things if things start crashing (which will then risk not covering the initial investment, trigger a run, and amplify further).

I probably should have left that part out of my original comment, since it was just my personal opinion and not relevant to the point I was making (risk-free rate vs. non-risk-free rate).

Have you looked into decentralised alternatives like aave? I tried using blockfi, nexo and celcius. All three made withdrawing such a hassle. Repeat identity verification, mandatory 24 hour waiting period etc. I got fed up and turned to aave.

Don't you find it suspicious that BlockFi can offer such an incredible yield?

I don't see the appeal over trying to get 8.6% return in an index fund.

The index fund can crash for up to 5 years but will almost certainly bounce back within 5 years time.

The Blockfi thing can lose your money and never bounce back.

The SP500 has an avg of 13% return over the last 10 years and is considerably safer.

Why do you prefer USDC to GUSD? They both seem to be 1:1 backed centralised stablecoins, just the Winklebros version hasn’t taken off the same way

> but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts

Why on earth would you compare it to those rather than an index tracker?

Because the increase in a share's value is tied to a company's profits and losses, while the increase in a cryptocurrency's value is tied to hot air and memes (exhibit A: Dogecoin).

Because an index tracker exposes you to the risk of falling indices. Using a solid stable coin (DAI) and earning yield using an established lending platform (Compound or AAVE) or liquidity pool (Curve) does not. However, these new financial tools of course have other inherent risks but they are probably smaller than exposing oneself to the wildly fluctuating Bitcoin price.

> a solid stable coin … established lending platform

I think we are probably eons apart on the meanings of the words “solid”, “stable”, and “established” here.

> the smart contract for USDC can block any address containing USDC at any time

Is this documented anywhere? What's the procedure within USDC to perform this block? Is it just whoever has the right private key can execute this blocking function and propagate it through the blockchain?

>Is this documented anywhere? What's the procedure within USDC to perform this block?

https://etherscan.io/address/0xa0b86991c6218b36c1d19d4a2e9eb...

The smart contract has a "blacklist" function.

Does the proxy implementation pattern used in this contract actually mean that the owner of the corresponding keys can not only block addresses from holding USDC, but actually swap out the entire implementation, e.g. for one implementing transaction or inactivity fees?

Why does it matter? They owe you the money in the first place. If they’re ill-intentioned they can just refuse to redeem your coins, or require that you send them to a new contract with different rules.

There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.

> There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.

Can you elaborate? Say you issue RUNEKs, how do we move them around freely in a digital world with the assumption that you are not required for transfers?

Why don’t you want me to be required for transfers?

You already depend on me for redeeming your coins for USD, so depending on me for transfers doesn’t present any additional risk.

Runek seems more likely to be asking, why pay the very high price of putting a trusted instrument on a trustless blockchain. Which I believe is a fair question.

I'm asking how else can you get the same functionality.

{ blacklist, unBlacklist, updateBlacklister (add), isBlacklist }

Looks like a full API to manage a blacklist and an authorization scheme for adding blacklist administrators.

Oh hm I should of clarified, I meant more like the human procedures to go forth and run the blacklist function, I'm sure the actual code is documented (and it appears to be - nice!), but it doesn't really matter how secure the code is if anyone inside the organization can execute it.

Although having an un-block function is good thinking since it would allow them to reverse course - no bad decision is permanent.

"Apparently"

Regarding USDC - people in control of usdc can (and did) blacklist any wallet at their own desire, so it's not much different from storing money in bank, exchange etc

How about DAI ? This stablecoin doesn't have both USDT's and USDC's disadvantages

Unfortunately, it's largely backed by USDC right now... The failure of USDC would hurt the DAI peg.

If your threat model is government-backed censorship, though, it should be an improvement.

all stable coins can blacklist except DAI

Dai is 60% backed by USDC

This suggests only 5% being backed by usdc: https://daistats.com/#/collateral

The last section, "Dai from PSM-USDC-A", is also USDC in the peg stability module.

Technically still not 60%, but thank you for pointing this out! I was not aware of this.

If i interpret this correctly, this could lead to a very high spike in interest for dai lenders on other collateral currencies, in case the usdc collateral goes bad.

why? can't maker implement blacklists?

DAI is managed decentrally by MKR holders so not really. At least not in a way that you wouldn't be able to do with any crypto.