Hi notahacker. It's not just the absolute size of the interest rate. It's also the volatility. Exchanges which offer margin trading have market-determined interest rates, which we have seen swing widely in the past. To be clear I think that market-determined rates are no bad thing, but I also think that there is room to offer a stable rate if you a have a low-risk subset of the overall pool of borrowers.

To deweller's point - yes, we have risk management algorithms. These algorithms listen to the BTC/fiat exchange rate, and if this moves against the borrower so that the value of the loan could be compromised, we issue stop-loss trades to liquidate their fiat holdings and protect the value of the loan in BTC. This doesn't completely remove risk: there is a chance that liquidity drys up completely and in that case we would have to use some of our capital buffer.