Attorney General orders unregistered crypto lending platforms to exit NY
ag.ny.gov
ag.ny.gov
If the crypto companies focused their efforts on accredited investors there would be less of a panic about crypto. But most of them come in with a populist rhetoric that sounds like a political movement: they want to bring high growth, high risk investing to the masses, they want to offer something highly speculative to the average person. In other words, they want to try to make an end run around the thousands of laws that we have in place to make sure that the average citizen doesn't get bilked in some scam.
It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. But it would be difficult to pump up the price of these cryptocurrencies if the bulk of crypto enthusiasts were taking such a moderate line.
Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2]
[1] https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/
[0] https://www.statista.com/topics/3467/millionaires-in-the-uni...
That means that when it was originally instituted, there were much fewer and they were much richer compared to the rest of society.
So if someone is quoting an unreasonably low number, they might be using a figure from long ago.
> There is a common misconception that a “process” exists for an individual to become an accredited investor. No government agency or independent body reviews an investor's credentials, and no certification exam or piece of paper exists that states a person has become an accredited investor. Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale.
In the US as far as I know it's just fulfilling the monetary requirements (income or assets).
> Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale.
means you are not accredited until you have due diligence done on you.
So what though? We're not arguing over how simple or onerous the due diligence process is. Whatever it is, whether it's as simple as just checking a box or as difficult as walking on the moon, it is something that needs to happen before you are "accredited". Households that don't go through that process aren't accredited, even if they're worth a trillion dollars. It's as simple as that.
>(a) Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, <etc.>
Persons that meet the definition of an 'accredited investor' per 17 CFR § 230.501 are accredited. Attestations, diligence, etc. are irrelevant to that fact as defined by law. There is nothing that needs to happen above and beyond the criteria as spelled out.
Have 999,999$ net worth? not accredited. Find a dollar bill on the street? Accredited. Spend 1$ on a coffee (ha..)? No longer accredited.
There is no governing body that gives you a stamp of approval towards accreditation. It's basically only "enforced" if you get caught.
So, no, there's not practically "more to it" than checking a box. The most stringent I've seen is a notarized letter from my accountant (rare) and the least stringent I've seen is that the startup owner never asked.
Incorrect.
You are accredited if you meet the income, asset, or professional certification tests.
People selling you certain securities are required to make a good faith effort to confirm thar you are accredited before selling to you, but (whether or not another firm has done so), but this has no bearing on whether you are accredited, in the same way that whether you are a citizen, lawful permanent resident, or work-authorized alien doesn't depend on whether or not an employer of yours has done their duty in regard to I-9 employment eligibility verification.
Theoretically a smart contract could check the token and Ethereum balance of an address and classify it as accredited if it has more than $2 million in on-chain assets. I’ve spoken to several securities lawyers, and the consensus seems to be that this is unconventional but complied with US securities law as it stands.
Without providing that proof of lower risk (and a LOT more information), the tradeoff is that you can raise from accredited investors. It is one thing to take $500k from an accredited investor who might wince but can still take the hit if your investment opportunity fails, but quite another to take the same amount from someone for whom it is their entire life savings. Your failure then condemns them to a life of poverty and living on govt programs.
Sure it seems nice and egalitarian for everyone to have the 'opportunity' to invest in riskier schemes, but history shows that the times it ends well do not offset the times that it fails.
It seems every 3rd or 4th generation needs to learn for themselves. Banking and finance go off on a bunch of new ideas, there are systemic failures and boom/bust cycles, enough people realize that this unregulated wild west is a bad idea and put in regulatory fixes, it gets better, then after a couple of generations everyone forgets and says "why are all these damn regulations here keeping me from becoming wealthy?", starts dismantling them, nothing happens for a while, then the failures, boom/bust, etc start again, lather, rinse, repeat...
See Chesterton's Fence [1]
"We estimate in 2020 there were 13,665,475 accredited investor households in America." https://dqydj.com/accredited-investors-in-america/
I'd argue SEC pushes people who aren't accredited investors into riskier investments.
[1] https://www.msn.com/en-us/money/markets/what-net-worth-is-co...
122 million, you mean. (The rest of your piece is consistent with that.)
They also abuse these privileges all the time.
If your net worth is $20M and you're investing $20,000, losing all of it clearly wouldn't bankrupt you. If your net worth is $20,000 and you're investing $20,000, losing all of it clearly would bankrupt you.
But then you say to the person with $20,000 that they can't invest $500. Which is kind of nonsense.
People act like all of these companies trying to cash in on the crypto gold rush are on the up and up, but historically when there's a gold rush, there are unscrupulous actors seeking to cheat and steal from unsuspecting marks.
We can throw up our hands and just say 'free market' and 'caveat emptor', but if too much money gets roped into a financial bubble, when it bursts it hurts everybody.
So right now there are crypto firms making all kinds of claims about how their assets are backed, or how consumer money is safe in their little DeFi account. It is, and should be in the SEC's (and the NYAG's) purview to regulate that.
The crypto market is maturing and it's a shame that people like you seem to want to cut it off before it fully matures.
Truth of the matter is that in the financial industry there are always cutthroat and dishonest players trying to find a novel way to bilk people and yet more people trying to make a buck in a reckless manner that endangers consumer money.
Ultimately it's not about crippling the crypto industry, it's about preventing fraud irresponsibility. Other financial sectors have to do this, crypto should be no different.
These markets are prone to scams and counterfeit. In response, various appraisal services rose up (like Beckett) that promise to verify the authenticity of these cards. They've managed to build community trust over time and are now a staple of the industry.
The same thing will happen with DeFi, it just needs room to grow and mature. I think your opinion will change once heavyweights like Visa join the club (see below).
https://www.coindesk.com/business/2021/09/30/visa-unveils-pr...
However, an accredited investor might just be someone who got rich through inheritance, i.e., not at all through their own doing, so I don't think that accredited investors necessarily know more about investing. They can, in theory, weather a loss more, depending how much they bet, although AFAIK there are not restrictions on them betting it all.
People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? Maybe it pays off for them, maybe it doesn't (just like lottery / casino / etc., and I think they have a better chance in crypto).
That said I don't really like centralized crypto lenders like Celsuis, Nexo, etc. If anything, I think people have a better chance just buying crypto at spot price and not lending it out, although if someone really was set on lending out their crypto, they are better off with the decentralized lending alternatives.
Of course the corporation/vendor of the scammy investments will fold at that time, but the management will have long since pulled their money out and will be largely unpenalized, leaving tax payers to fund the bail out.
That's not to say accredited investors don't get government bailouts when they play it to close to the fire, they do. The bailout is just done quietly in the background and nobody is the wiser...
You can put money in crypto, though. Buy Bitcoin, buy Ethereum, there are plenty of ways to put your money in crypto.
Here New York is going after companies like Nexo that pretend like their risky crypto product is just like a bank account that happens to pay higher interest. Look how they advertise it on https://nexo.io/ -
ISO 27001:2013 Compliant. Impeccable risk assessment, data protection, and enhanced cybersecurity
$375 million insurance on all custodial assets
Earn daily interest on your crypto
Add or withdraw funds at any time
Personally, I find these to be misleading statements. You can't necessarily add or withdraw funds at any time because you depend on Nexo's solvency which is not guaranteed like it is for a bank account, their risk assessment in my opinion is not impeccable, et cetera.
If Nexo is going to pretend they are as risk-free as a bank account, then it seems reasonable for New York to regulate their statements like they regulate bank accounts.
For all those who try to compare this to subprime, there's two big differences here. First, decentralized lending is enforced by smart contract -> the banking apps dont take credit risk because they can auto liquidate defaulter's assets and collect a 10-20% liquidation fee for doing so. Second, decentralized lending apps max out at 60% LTV. People are either going to be safe and do 30-40% leverage which protects against 33-50% drops in the value of the collateral, or they are going get liquidated at 60%. There's no too big to fail here.
Right. What part of "Ponzi scheme" did you not understand?
This has nothing to do with "crypto". This is the same scheme as Madoff's. It's almost the same scheme as John Law's bank of 1720. There's not much innovation in scams. Just new forms of obfuscation.
Exactly: being wealthier just means you can make bigger bets. It's rather common for athletes to go bankrupt after retirement.
“ To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years”
Why should some legal investments not even be theoretically available to non-wealthy people? This smacks of the highest sort of elitism to me.
Feels like "Rules for Thee, but not for Me".
However, they also have to balance systemic risk agai st the need for access to the capital markets for smaller (and, yes, riskier) companies, which is why we have reg D offerings. Traditionally, the balancing test has been whether the “accredited investor” can be expected to have access to knowledge and expertise sufficient for them to understand the risk of unregulated and often complex offerings, such as convertible notes. In practice, this usually covers institutions and high-net-worth individuals, who have no excuse for not availing themselves of such expertise, or at least are less likely to lose their shirt if they don’t do so. Systemically, this prevents people from rushing into less-regulated, more risky investments that could create the kind of fiscal and political instability that marked earlier panics — reg D offerings may be riskier, but this way the SEC can manage just how many people are exposed to that risk. (You can, justifiably, be cynical about the fact that very large institutions will happily sink tens of billions into high-risk investments and get bailed out thereafter, but that leads to the question of whether it’s actually worth tightening regulation at the price of reduced financial innovation.)
BTW, the SEC has also recently opened up 501(D) criteria so a lack of net worth can be balanced by an appropriate professional or educational background that would give the investor the ability to judge risk, though I don’t think this has functionally changed the definition yet in the field.
This is actually the spirit of accreditation - it's more to do about how you promote securities as opposed to simply filtering out a portion of the population due to net worth.
In all seriousness, this is gate keeping, wrapped into "think about the kids" gift paper.
At large, US tax payers don't have access to state funded pension. Not all have access to 401k and like. Those that do, often aren't provided with great or flexible options or charged high fees. Plans are tied to controlled by employers. One of the ways to build wealth is to invest it into real estate. But it is hard, to acquire a primary residence hour US families have to compete with foreign investors, local private investors, big institutional investors with exclusive membership, like the one you mentioned, now even municipal pension funds. Not only fewer investment options are available to them, also fewer options to hedge against economic downturn. Tax system favors the rich.
Now God forbid the mass gains access to something new, that might actually double or triple their money. Gotta keep them in check.
Crypto is a huge gamble, but, at the same time, it is one of those opportunities that can shoot up. I know people whose 401k only recently recovered from 2008 crash and it's unclear how long it will take to recover after then next one.
Although, I agree that crypto is not for everyone, but I would rather see it challenge from marketing and advertisement perspective. Make them watch very carefully every word they put in any marketing material. Introduce various cool down periods, that can be a function of your net worth. Come down hard on anyone who touts it as a sure win strategy, but let people take the risk, if they want to.
You can't ask for no accountability, these rules are written in blood (or red, I guess).
Imo it would make it worse. Most of widely available standard financial instruments are based on some sort of contractual obligations of responsible parties, assets, operations. Risk analysis has been developing for decades for these instruments, and then enter Gamestop and AMC…
What would you put in prospectus for bitcoin, ethereum, level 2 cryptos or colored bitcoin? Or something like dash or monero? How do you estimate risk and impact of the upcoming ethereum fork?
Using the same guidelines for crypto as for standard financial instruments, will make it look like one of the known investment interests, while in fact, it is fundamentally different. I would say anyone, who tries to sell you a bitcoin under disguise of investment with some known risk properties is misleading.
You might need to be accredited to invest in a bank that operates on bitcoin, or have all your money parked on an exchange that operates in bitcoin, unless they're willing to do the paperwork. These are things that can and should be audited regularly if they're going to hold a lot of people's money.
* Nexo and one other are banned.
* Celsius and four others have been hit with extensive information requests due November 1st. Likely they will be unable to comply
You're not just guessing, right?
Where are the federal regulators in all this? As silly as it sounds, at some point we're going to have "investors" crying for restitution over money they lost in shitcoin ICOs, fart NFTs, and the crypto shadow banks described in the article.
The CFTC also said, in 2019, "virtual currencies, such as Bitcoin, have been determined to be commodities under the Commodity Exchange Act (CEA)" [2]. They also fined Kraken for offering margin to clients, but "failing to register as a futures commission merchant" [3].
It appears the SEC also has jurisdiction over certain cryptos that have been determined to be securities as well, since they have raised several cases for those [4, 5, 6, 7].
The IRS also considers virtual currencies to be property [8].
Based on this, there is already regulation and asset classification already going on, although I do think it would be great to have more clarity and agreement between the different regulating bodies, regarding crypto, in the US. For now, maybe it's just that some cryptos aren't considered securities until they are called out to be, and the rest would be considered commodities, at least until we hear more about this from regulators.
[1] https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-mak...
[2] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi...
[3] https://www.cftc.gov/PressRoom/PressReleases/8433-21
[4] https://www.sec.gov/enforce/33-10715-s
[5] https://www.sec.gov/news/press-release/2020-262
[6] https://www.sec.gov/news/press-release/2020-338
[7] https://www.sec.gov/news/press-release/2021-172
[8] https://www.irs.gov/businesses/small-businesses-self-employe...
We're still building consensus. This is a multidimensional policy space; I doubt any single person knows even what all of those dimensions are. It's a type of problem our federal system of government excels at solving, albeit slowly. States will experiment with policy. Down the road we can consolidate their lessons. Only thing to keep an eye out for, in the interim, are systemic risks.
Is that really a punishment? Is that really a deterrent for the next group to start something to run for as long as they can before they get noticed?
That's fine. I was recently discussing the American financial system's exposure to Tether [1]. It appears there isn't much. Ceteris paribus, when that blows over, it shouldn't hit us. It will hit the next guy, in the next town or state or country.
People are using DeFi to make degenerate bets on various crypto projects. That typically involves
(1) buying tether, (2) using it in an overly collateralized loan to borrow tether, (3) then using that tether to buy another crypto, (4) watching/hoping the price of that go up (5) selling that corresponding crypto, locking in gains, and repaying the loan
If tether drops dramatically in price due to a lack of confidence, these loans will be affected. Such crypto tokens may be bubbling up only because these DeFi loans are possible.
Which will wipe out those investors. Not anyone else. People are free to lose their own money. It becomes a regulatory issue when those losses cascade, or if someone who didn't realize they were taking those risks is forced to bear them.
I personally know people who have gotten into the GME craze, I know people who are stupid enough to day-trade options, and I know people who spent a paycheck on buying dogecoin. They are all relatively normal people, and while some of them should not have gotten into these transactions, given what I understand of their personal finances, I understand why this happens. They live in America, where nobody's stopping you from spending your rent money on buying dumb meme stocks, and RobinHood has a cool mobile app for trading options, and maybe you win, or maybe you get burnt, it is what is, yolo, etc.
But of all those people, I don't know of anyone who dipping their feet into borrowing tethers to trade crypto on margin, or investing into crypto ponzi schemes. Who, exactly, is getting roped into that sort of thing? Posters on the crypto equivalent of r/wsb? Day-traders? Or is it Joe Average?
Meaning buying and selling the same options contract in intra-day transactions?
Or just retail trading options?
They're two very different things and I think only the former is actually stupid.
A recent fear was Tether holding dollar-denominated commercial paper. If they went under, they'd dump that paper. This happened in '08 with money market funds, and we passed a lot of regulation to ensure that failure mode can't happen again.
Fortunately, to the extent Tether holds anything, it isn't cash or U.S. dollar commercial paper. So contagion vector contained.
Why the huge disparity? From an economic point of view, the bank is just as required to redeem its obligations as Tether.
https://www.prnewswire.com/news-releases/usd-coin-reserves-e...
The better comparison for stablecoins are money market funds. The lockup of those caused the worst of the 2008 financial crisis. They also have much stricter regulations than stablecoins.
Fitch today released an opinion that stablecoin liquidations could cause a similar sort of systemic risk. They need some kind of regulation. No stablecoin has even done an audit! (Attestations are not the same)
Yup. They’ve had attestations. In those, an auditor just looks at an account at a moment in time. So you could, for example:
1. Get a loan
2. Put it in the reserve account
3. Ask accountant to verify the amount
4. Accountant attests to seeing money in the reserve account
5. Afterwards, move money out to pay off the loans
Sound crazy? Tether actually did this, it only came out in the NYAG settlement.
USDC uses a US accountant, but nothing in the procedures they use would prevent such a scenario. The auditor merely relies on management assertions in an attestation.
Tether by contrast is a pretty much an obvious ponzi scheme that everyone is just playing along with because they're making money and hoping they get out with profits before it implodes.
https://www.google.com/amp/s/amp.reddit.com/r/MakerDAO/comme...
In one chart ETH still predominates, but in the second USDC is the largest portion.
With Tether they print it and give it out to their buddies for who knows what, maybe a pinky promise to repay some day.
The US dollar is backed the US. All banks are supervised and insured by that same government. If a bank takes on too much risk, a) there are people watching that, and b) the US can wind it up and pay everybody back. So a single bank failure causes approximately zero currency risk. As long as you stay under the FDIC limits, you'll get back every dollar you put in.
Tether, on the other hand, is backed a bunch of shady characters who have been caught lying about what backs their currency. They claim it's 1:1 with US dollars, meaning that people buying Tether have no risk. But the more we learn about what they're doing, the clearer it is that it's not the case.
Tether, well who knows? Tether has cash + nothing which very likely is less than the redemptions they may face. If people want to get real cash out tether has no one to go to to make sure they have cash.
Most countries that peg their currencies like China buy USD or "cash equivalents" like US treasury bonds. They don't lend out their reserves to a third party.
This is irrelevant. But she* [1].
Bitlicense isn't a disaster, but it's a huge problem if you're in the space that you really do need to be careful of crossing. Crypto has a meme factory but not a lobbying strategy, and even if it did it's up against two near immovable objects: old school finance lobbying and being an easy target/distraction in the press.
We should just be thankful that Bitlicense wasn't adopted elsewhere and give up on NYC as a hub for this stuff. Until crypto grows beyond finance AND legal combined (legal will lobby with finance if asked) in terms of who makes money in NYC -or- crypto allies itself with another major mover (maybe real estate), don't expect things to ever change for the better.
It's a shame really. NYC would be leading crypto if not for this law. But then again, NYC doesn't care because tech is probably the 5th or 6th largest revenue generator in the city and has few/no generation spanning connections to Albany.
(genuine question that i've thought about)
To be fair, we're talking about New York State. Which is the center of finance in the US. The regulators in NY-State have an outsized influence on this sort of thing.
It will be a good day indeed, to see NY Fall from that status.
> New York’s Martin Act sets forth a broad list of instruments that are declared to be securities and thus subject to its provisions: “any stocks, bonds, notes, evidences of interest or indebtedness or other securities…or negotiable documents of title, or foreign currency orders, calls or options therefor hereinafter called security or securities.” As courts have stated for almost a century, the Martin Act is a remedial statute, intended to protect the investing public, which means that its provisions — including those setting forth the definition of a “security” — are to be given a broad reading. Indeed, those defined categories of instruments are not exhaustive; other instruments or arrangements can, and have been, deemed securities under the law
Note that this doesn't just impact lenders based in NY, it impacts anybody lending to New Yorkers.
The US in turn, is up there as one of the worst countries for cryptochoice up there with Cuba, Crimea and Sevastopol, Iran, Afghanistan, Syria, North Korea, or Antigua. (Granted the US is there because of 'legitimate' SEC regulations, but ther is no reason NY should be more restrictive than the feds).
[1] The ability of the indiviual to choose which crypto they want to buy and availability of them
[2] https://help.ftx.com/hc/en-us/articles/360042412652-Location...
Edit: Unless you meant all of the thinly traded altcoins they've been adding which, yes, NY State has been correct to forbid. Penny stock fraud but with tire burning as the economic substrate.
Most platforms choose the former, and even if a platform chooses option 2 it takes time, money etc etc. Now, even tough DOGE was widely traded in the entire US it was not allowed in NY at the beginning of last year. So what happened now, did it become a 'better' coin? No! Will SHIB be a 'better' coin magically once it's 'registered'? Of course not. Point is, however much you hate crypto there is no point to this restrictive law.
This misses the point: the financial legwork doesn't make any of these altcoins "better," it just makes their use more transparent to regulators. That transparency is in the public's interest. It's not the AG's job to make cryptocurrency better; it's her job to ensure that the laws of the State of New York are obeyed.
That is because of these burdensome "You-need-us-to-protect-you-because-you-are-not-smart-enough-to-make-educated-choices" crypto laws.
There are lots of different ways to ensure "scam" cryptos don't end up in NY. Being overly restrictive doesn't help NY'ers at all.
No, it's not the Wild West, rather the opposite. These businesses need to be registered when operating in NY. Two that were not registered were directed to stop unregistered operation. Three others were told to "immediately provide information about their activities and products".
Many years ago (back when Bitcoins were ~$20), there was the PirateAt40 (Trendon Shavers) "Bitcoin Savings and Trust" bitcoin lending ponzi scheme. At the time, it was huge, thousands maybe even tens of thousands of bitcoins were invested.
Claimed that there was some scheme for providing short term liquidity to bitcoin OTC sellers or something like that, and offered a 7% PER WEEK return rate. Eventually had a fancy lending website so everything was self service.
"According to authorities, Shavers possessed about 7 percent of all bitcoins in public circulation at the peak of the scheme." (https://www.vice.com/en/article/nz7dy8/the-man-behind-bitcoi...)
Though I strongly suspected it was a ponzi, I deposited ~$20 of bitcoin, collected a few weeks of interest and successfully withdrew. The ponzi scheme imploded just a several weeks later, with the withdrawal mechanism being disabled and then several months later the creator was arrested. There was massive panic in the bitcoin community because a lot of people lost a lot of Bitcoins - the scheme lasted for months, maybe over a year, so trust gradually built over time until the rug got pulled out. Was interesting to see so many people defending and believing they would still get their money back after the writing was already on the wall.
(Some facts probably aren't accurate, but that's how I remember it)
Modern crypto lending platforms seem more legit but have that same familiar funny smell to them. I'm sure some are on the up and up (8% APR is much more achievable than 3372% APR... haha), but suspect a decent percentage are just ponzis with a nice story to get investors to buy in. Some people will pull their money out and be happy with the returns, some will 'invest' more than they can afford to lose and have their lives ruined.
Please think very carefully about the risks of using these lending platforms. Personally, I don't think 8% APR is worth the risk.
I deposited $20 and was hoping to earn a bit of money before pulling out. Unfortunately I was a bit late to the party, as one week later the website could not be accessed anymore.
There is a skill to sounding brilliant when you’re not, and much of crypto seems to entirely hinge on that skill. Fake it til you make it and then just keep faking it.
1. Are these companies breaking the law?
2. Are Nexo and others "tak[ing] advantage of unsuspecting investors"?
3. Does these companies think they're "above the law"?
4. Is the Martin Act protecting the investing public in this case?
Each of these is deserving of its own in-depth answer, but TLDRs are sufficient:
1. Yes, because securities law is written to be a catch all (both the Martin Act and the 1933/34 Securities Acts) where exceptions are drawn as to what is _not_ a security. While these accounts may act more like traditional "bank accounts", bank accounts are specifically excluded from securities law because they fall under a (stricter) regulatory regime.
2. No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here.
3. I don't think so, but they do know they're not in full compliance. This is a game of Natural Law (see point 4) and cat and mouse, and staying ahead of regulators is different than being "above" the law.
4. Stablecoin yield-accounts are one of the few liquid, low-risk options for beating inflation and likely the only one accessible for every-day people. If anything, they should be more pervasive in accordance with the principal that BlockFi, Nexo, etc. and their ilk are offering a social good even if it is outside of what they are _permitted_ to allow by law. It is US fiscal policy, brittle supply chains, and lagging regulatory regimes that are detrimental to the investing public here.
They guarantee ridiculous crap like 9% yields, beating historical equities YoY returns
9% yields are generally indicative of fraud - especially when we've had news of Ponzi like behavior from celsius admitting to taking on a $1B USDT loan collateralized by BTC from tether the other week.
How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here.
Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account.
Also, they have insurance, but I'll believe its useful when its tested.
Aave/Compound/Curve/Benqi <- decentralized non custodial overcollateralized lending protocols.
These centralized and incorporated companies [basically a big bulls eye saying "please screw me over, here, I'll make it very easy for you for governments"] use Aave/Curve/Compound on behalf of their users who are too lazy/ignorant to do it themselves, plus maybe some economies of scale with cost of gas fee on ethereum.
Right now on benqi (compound fork on avalanche), one can supply DAI and get 8.09% APY in DAI alone (there's more APY in other tokens but I don't like to count those since those incentives come and go), but it fluctuates based on borrower demand/pricing model used in the smart contracts [0].
By supplying DAI, using it as collateral to borrow more dai (up to 75% for dai, different collateral factors for non stablecoins, i think max 60% of collateral value, some with 0%[which means it cannot be used as collateral but it can be lent/borrowed, USDT is like this]) and then depositing it back in again, you can get more yield on that minus the borrowing costs if there are protocol rewards/incentives to be liquidated for more dai.
There's also providing stablecoin <-> stablecoin liquidity on dexes and collecting fees on each swap.
[0]: compounds jump rate model: https://github.com/compound-finance/compound-protocol/blob/m...
Nexo, Celsius etc own your crypto. Like the terms say you sold it to them. Pretty sure a broker does not own your portfolio.
They do. The shares in your account are registered in the brokers name.
Stockbrokers have rules, segregated accounts, and insurance. There is also a direct registration option through the DRP.
https://www.investopedia.com/articles/investing/050515/what-...
The fact that it isn't clear to you what this insurance policy covers is the concerning part (and the wording is likely not a mistake on the part of Nexo, etc). Genesis insures the custody of crypto assets. It does not insure against default of the vendors it is loaning out to (which is likely the majority of their assets).
My understanding is that most of the crypto lending platforms deposit with Genesis trading in order to generate a return. Genesis trading then loans this money out to different hedge funds, trading firms, etc, which pay them interest. I assume Genesis does a good job of choosing who to lend to, reducing risk, etc, but I also imagine that one black swan event could wipe it all out. Ex: USDT collapses HARD, and goes to 0. All of the trading firms with excessive USDT exposure collapse, Genesis is underwater, etc.
The city of new York supplanted the City of London as the worldwide financial powerhouse very early last century. This was partly (though not primarily) due to regulatory environments in the City of London to protect entrenched interests, thus putting them behind the curve and allowing this new, innovative city to take momentum in the financial industry. As the financial industry changes rapidly, particularly as it democratizes, we will see less influence from these behemoth financial centers, but anything one of them does to try to hinder these changes to protect itself will only accelerate it's demise within this industry. New York is making one of the mistakes the City of London did in the 20th century and it will pay for it.
That would piss off a lot of people.
With respect to defi, other than trying to shut down entities that host the website which is really just a gui for interaction I'm stumped at what action exists.
For instance, I go on coinbase buy ethereum and some wrapped token. I can then transfer that wrapped token to just about ANY smart chain I want paying for the tx, then use that money get an over collateralized loan, then go buy some other wrapped/native token collect what ever yield I want and use that to service the loan fees.
I can then unwind the entire process when ever I want come back to coinbase sell the wrapped token on their open market and then turn it into fiat. That's not only it. I can unwind my loan/yield strategy convert it into an ERC20 stable token transfer that any fiat on/off ramp I want and voila. I'll use tools to keep track of the transfers/txs pay taxes to the IRS on the cost basis.
What can they actually do about that other than action that WOULD cause mass panic and induce the very thing they are afraid of.
New York's Attorney General is powerful.
If someone were stupid enough to openly defy her, they'd be facing down against an opponent who can, just off the top of my head, freeze funds, seize domains, jail employees and announce as tainted affiliated wallets.
Her office was empowered to take on the most powerful financial institutions in the country. Apart from the pursuit of an insanity defense, these firms have no reason to keep doing business in New York.
I don't think the issue is with the technology per se as much as with someone being paid to market it. Grandma isn't going to roll her own wallet. She might see a 4% yield on what looks like a savings account and not realize the added risk.
Agree that short of nation-state involvement, the contracts are probably there to stay. (Though if a state wanted to get particularly nasty, they could go after anyone maintaining them.)
There are no blockchain contracts. When you sign up with Celsius, you transfer ownership of all your crypto to them. If they went bust, it is their asset and their bond holders get it.
In return you get a promise of interest, payable at moment you ask to withdraw.
But there’s no blockchain contract.
1. They buy your crypto outright
2. They gamble it in the markets (their secured debt issuance documents lists greyscale, osprey and some stock warrants on a failing biotech company as their assets. And one crypto tech firm, forget the name)
3. You hope they don’t go bellyup and will give back the crypto if you ask for it.
No blockchain contract, total centralization
You could argue it's positive for consumers.