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Comment by tobias3 | Hacker News Reader

Maybe they should have asked Brett Redfearn (former SEC director working at Coinbase) about the SECs reasoning. He left Coinbase in July? I guess the revolving door corruption failed (and/or he figured out where the wind is blowing)...

This is really all too transparent and obvious. A risk-free investment with 4% APY. What-aboutism about other exchanges (which are unregulated and off-shore). Not "understanding" the problems the "SEC" has (even though they have all the money to buy even former SEC directors knowledge about SEC procceses).

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As a kid I made over 4% APY interest on my savings account. Risk free.

Yes, I realize their are important differences here but I don't think that getting a 4% risk-free return should be seen as an "obvious" problem.

Is the interest in case of lend actually risk free? The savings account was heavily regulated and insured so that even if the bank went out of business you would get your money back (up to a certain amount). What kind of emergency measures are in place to ensure that Lend costumers see their money again if coinbase goes out of business?

It's not about the exact percentage, it's about it being significantly higher than the risk-free interest offered elsewhere in the market (which is <1%). That's a big red flag that it's not actually risk-free.

This is misleading. Different people asses risks differently. I have extremely little insight into the existing financial system: does my bank really have good security over their servers? Do they practice recovery on a regular basis so that there’s confidence my money will still be there when failures do happen? Will the IRS make a typo that results in my bank assets being frozen?

I have zero insight into that. A lot of people seem to take it foregranted that existing bank systems are infallible. I have no way to assess that beyond the test of time (which is still worth something).

Cryptocurrency lending platforms have similar types of risk: what’s the feasibility of the thing being hacked. For most of these, I can actually do a very rough assessment because the code is public, the team is usually public (and has a track record) and there are probably some security audits by groups who either are or aren’t yet reputable. I have more tools for assessing risk.

So yes, some people will judge the risk of the 0.1% system to be lower than the 4% system. Some people will judge the risk to be the reverse (more practical if you substitute Compound/Aave for the 4% system). But you can’t separate the risk of a system from the users of that system so cleanly. There’s a very large subjective component to it.

Everything you mentioned (servers failing, hacks, etc) is operational risk, and that isn't what I'm talking about here. The point here is financial risk: things like a counterparty defaulting on their loan, the intermediary (a bank, Coinbase or their insurer) going insolvent when that happens too often, and you losing your "guaranteed" money.

The US government is generally regarded as the worlds most reliable debtor, and thus US government-backed securities (such as FDIC-guaranteed bank deposits), are seen as the lowest attainable risk and called "risk-free". Anyone offering higher interest rates must do something that incurs more risk to get the returns necessary to be able to pay that higher interest rate.

The consumer primarily cares "what's my expected return, and what's the variance". Operational risk surely affects that, so what's the justification in ignoring it?

> The US government is generally regarded as the worlds most reliable debtor, and thus US government-backed securities (such as FDIC-guaranteed bank deposits), are seen as the lowest attainable risk and called "risk-free". Anyone offering higher interest rates must do something that incurs more risk to get the returns necessary to be able to pay that higher interest rate.

Look at your wording here: "generally regarded". This is the point I'm after: risk assessment is a thing done by individual actors. Yes, they'll outsource much of this to 3rd parties, but at the end of the day, it's a subjective thing. People with political ties with the US may be more likely to view US banking as a low-risk activity; the disenfranchised or the people with weaker US ties might view it as higher risk. It can be simultaneously true that Alice's risk-adjusted return through Lend is more than her risk-adjusted return through traditional banking, while Bob's risk-adjusted return through Lend is less than through traditional banking. That's not necessarily a contradiction.

Inflation and growth was higher back then. My guess is that most of the growth is simply happening outside the developed world.

It's somehow in human nature to not share work. The bean counters will tell you how stupid it is to manufacture in the US and that you should move absolutely everything to Asia.

Do you know why it was risk free (to you)? Because of government regulations and government guarantees. There’s no such thing as a risk-free investment. Your investment risk was borne by your state and federal government.

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