Previously, I wrote a three part series about a plan for interest rate arbitrage.
The goal was to get tradfi loans at the prevailing 3-4% rate, and lend it to crypto earn products earning 8-16%. Services like BlockFi, Celsius, Gemini and others.
That was not a good idea. Earning 8-16% like I thought was not sustainable. Every one of those failed.
In what I thought was the final post of the series, I described how I thought those earn products generated revenue:
- If you’re bullish on crypto, it’s better to get a collateralized loan against your crypto than to sell it. Lots of people want these loans.
- When volatility is high, traders increase leverage to speculate, and are willing to pay more.
#1 is earning interest by issuing overcollateralized loans, and #2 is providing margin for traders.
It turns out that even if earn products were doing some of that, that was not sufficient to produce adequate returns.
Luckily, I was able to withdraw from all of these products, so I did not incur any losses from this strategy.
I don’t have a moral of the story or new insight. I just am stating for public record that I was wrong in those posts.