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You can earn 100% annual interest rate using USD in multiple places on Ethereum right now. How?
Thread you can share with normies.
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Thread you can share with normies.
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While much of this is obvious to crypto twitter, I realized this morning that this could be a 0-1 moment for people (whoa I can earn 100% APY on USD?) much like the ICO bubble (whoa I can earn 10x like a VC?). So wanted to try and explain in simple terms.
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You earn an interest rate when you lend your money. For most people, your bank does this for you and pays you on average 0.01% for your trouble. If you shop around, you can find high yield accounts that get you closer to 1%.
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These rates are determined by the interest rate borrowers are willing to pay for your money. Right now, rates are low. They are not willing to pay much.
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So why are rates 100x+ higher in crypto right now? Two main reasons and one bonus reason.
(1) borrowers are willing to pay more.
(2) lenders are earning bonus fees on top of what borrowers are paying them.
(bonus) we'll cover later.
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(1) borrowers are willing to pay more.
(2) lenders are earning bonus fees on top of what borrowers are paying them.
(bonus) we'll cover later.
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Why are borrowers willing to pay a lot more. Because they think they can make more money with what they borrow from you than what they have to pay you.
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Why do they think they can make more?
In addition to being able to lend out the money they just borrowed from you, their fees are being subsidized.
How?
They are getting paid to borrow.
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In addition to being able to lend out the money they just borrowed from you, their fees are being subsidized.
How?
They are getting paid to borrow.
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When they borrow from you on @compoundfinance, they are getting a sort of cashback. The more they borrow, the more cashback they get.
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The cashback comes in the form of $COMP, the token for @compoundfinance where you are lending and borrowing.
It would be like if American Express paid you a tiny bit AMEX stock every time you paid interest on your credit card balance.
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It would be like if American Express paid you a tiny bit AMEX stock every time you paid interest on your credit card balance.
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At this time, the cashback is actually worth more than the cost of the fees to borrow.
This means people are incentivized to borrow just to "farm" the cashback.
This increases demand for loans and subsequently increases how much lenders can earn.
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This means people are incentivized to borrow just to "farm" the cashback.
This increases demand for loans and subsequently increases how much lenders can earn.
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Increased borrow demand has gotten us to around 10% versus the 0.01-1.00% you can get outside of crypto. 10x is cool but how do we get to 100x?
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That cashback borrowers are getting? Lenders get it too. The more interest you earn, the more cashback you get.
Based on current rates, that can get you to around 50%.
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Based on current rates, that can get you to around 50%.
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How do we get these rookie numbers up?
Because people are getting paid to borrow, lenders can take the money they deposited and use that to borrow more money. They can then take that money and lend it.
This gets overall APY closer to 100%.
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Because people are getting paid to borrow, lenders can take the money they deposited and use that to borrow more money. They can then take that money and lend it.
This gets overall APY closer to 100%.
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So there you have it.
Now with your USD you can earn 100% APY instead of the 0.01%-1.00% your banks are offering you.
Fellas thats a 100-10,000X increase.
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Now with your USD you can earn 100% APY instead of the 0.01%-1.00% your banks are offering you.
Fellas thats a 100-10,000X increase.
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Bonus? There are different flavors of digital USD and each one with its own rates.
People that want to maximize earnings will swap to the flavors with the highest rates.
And there's a way to profit from this activity.
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People that want to maximize earnings will swap to the flavors with the highest rates.
And there's a way to profit from this activity.
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The easiest way to swap between digital USD variants is through an exchange that focuses solely on these types of swaps: @CurveFinance
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But instead of a traditional exchange model where you have a thing you want to trade with someone who has another thing and you agree on the price, Curve works by putting a bunch of variants into a pool and letting people trade with that pool.
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If you don't care about which variants you are holding, you can contribute to that pool and earn fees. If a lot of people are trading with that pool, you can make a lot of fees.
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Those pooled digital USDs can also be lent out. So in addition to earning fees on transactions, you can also earn an interest rate from lending out that money simultaneously.
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Demand is so high for both borrowing and for trading variants of USD that contributing to the pool have yielded rates at 200%+ at times.
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So why are rates for lending USD so high when they are so low outside of Ethereum?
(1) Demand for borrowing is high,
(2) There are big juicy subsidies in the market, and
(3) Lenders can earn additional fees by helping traders exchange their different forms of USD.
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(1) Demand for borrowing is high,
(2) There are big juicy subsidies in the market, and
(3) Lenders can earn additional fees by helping traders exchange their different forms of USD.
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All of this is far far riskier than putting your paycheck into your bank account though.
Is it 20,000X riskier? Probably not. But please get educated on all the risks before putting your life savings into this.
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Is it 20,000X riskier? Probably not. But please get educated on all the risks before putting your life savings into this.
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These rates won't last forever. This moment in time is unique.
But these dynamics won't go away altogether either.
If you're new, play around with a few dollars and learn. There's a lot of opportunity here and tons of people looking to help you learn.
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But these dynamics won't go away altogether either.
If you're new, play around with a few dollars and learn. There's a lot of opportunity here and tons of people looking to help you learn.
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As promised, a thread on the risks: https://twitter.com/tonysheng/status/1274780457729617920?s=20
