Bitcoin / Bitcoins / Crypto Currency

Bancor are payiong 17% returns on staking BNT at the moment. Do you honestly think that Bancor is being used by enough customers to generate transaction fees to pay out 17% APR?

It was a lot lower a couple of days ago but it is an effect of the death spiral the linkpool are trying to create. They along with Celsius, 3AC, Greyscale are all withdrawing and receiving large amounts of BNT having suffered impermeant loss or selling their BNT holdings which is driving the BNT price down (down 60% this month), it is however leading to a lot of BNT being traded through the protocol and generating large fees currently. I think it is 42% of transaction fees go back to the pool in v3. The ending of ridiculous liquidity mining fees to the fee share model (and voted for by BNT holders). was to create a more sustainable model long term. Time will tell, it's all the wild west at moment. If they fail, hopefully others are watching and will incorporate any lessons learnt.

Guess I would partially just like to seem them succeed as they got their code copy pasted by Uni and Sushi and left behind in the Defi summer, would be good to see slow and steady win the race.

I'm very much a crypto purist. Blockchain only offers benefits if there is zero centralised control. I wouldn't expect any project that is not 100% decentralised to survive long term.

Blockchain was billed as the beginning of the end of banks. Instead, the major Defi projects have become banks themselves.

Blockchain only offers benefits if there is zero centralised control.

Ah OK, so in this comment:

I'll be as blunt as I possibly can be. I don't believe that blockchain tech is capable of supporting a true decentralised DeFi service that has minimnal risk of failure. Not without operating as a centralised bank to some extent.

You weren't saying you think they should have centralised control, like Celsius, Nexo, BlockFi but that you just don't think decentralisation is possible?

Exactly. I don't think it's currently possible to offer a DEX or liquidity service without some centralised control. Bancor might be the best of the bunch and the least likely to fail but they sure have spent a lot of time and money applying for a banking license for a company that claims to not do any central banking.

I'm not clear if they operate in Switzerland or Israel but my suspicion is that they are subsidising their economy model with money raised by token listing fees which often dry up in bear markets.

Don't why me wrong, it might be a good investment. I'm just totally non plussed by their tech and see more hype than innovation.

Bancor are paying 17% returns on staking BNT at the moment. Do you honestly think that Bancor is being used by enough customers to generate transaction fees to pay out 17% APR?

Just add to this, it is all just game theory in the end isn't it and if markets can stay rationale. On one side you have people hoping to create a bank run, knowing that as people withdraw and sell they will drive the price of BNT lower and create more more IL and BNT being minted further driving down BNT price and getting others to panic and sell creating the spiral. While every transaction creates more fees for stakers and leads to BNT being burned as part of the transaction, hopefully higher APR brings in more fresh investment and BNT buyers stabilising the pools. The protocol should of been designed for such events and hopefully more extreme ones, if it can't cope with large volatility then it isn't fit for purpose and deserves to fail.

Bancor might be the best of the bunch and the least likely to fail

Last weeks Defisafety score would suggest that
https://www.defisafety.com/

Anyway lets see what the bear brings for all the projects which is where i think this chat started. LTC and tezos are the other coins I am happy holding and buying through the coming months and years as think they will survive without issues. I have no interest in allocating any money to small caps at this point as even if amazing projects the market is too fickle.

Anyway lets see what the bear brings for all the projects which is where i think this chat started

If Bancor is vulnerable, I'd expect them to be short squeezed by a traditional fund just when they can least afford it, which will probably be soon if it happens at all. We will see.

FTX appear to be trying but lack sufficient liquidity for now

Wonder how the MicroStrategy board are feeling about their BTC position?

FTX appear to be trying but lack sufficient liquidity for now

There's less than $400k of bid orders on BNT right now...might not need particulalry deep pockets to cause a wobble.

Edit: Somebody could take BNT to zero with less than $250k. I know that they hold a lot of BNT in trust so that would probably only lead to a flash crash, but it does feel a little iffy.

Tough day to the an ETH whale
https://twitter.com/DeFiyst/status/1538250216314478604

Enjoy this absolute shitshow, if you read some of the screenshots in the first few comments it should show the issue and how they are resolving it
https://twitter.com/cobie/status/1538529982804287488

Wow, that is a perfect example of what is wrong with most ERC20 tokens.

Also a good example of a failed DAO. Balancing economic disincentive is tricky.

When stable coins go wobbly
https://twitter.com/Tree_of_Alpha/status/1538556348174110723

Didn't take lone, Bancor have now done the disastrous thing of freezing withdrawl's (not quite true they have suspended impermeant loss protection, so you can withdraw but will be out of pocket), not really sure how they will get back from that. They are claiming it is because Celsius are acting maliciously which may well be the case but the protocol should of been designed to foresee such a circumstance.

Sorry to hear that mate. I don't wish ill on any of these projects.

When stable coins go wobbly

As an esteemed blockchain developer said to me this morning, "you can only have a bank run if you're operating as a bank".

The blockchain industry, particularly DeFi, basically abandoned its own tech (after finding out that their bold ambitions were impossible to do in a cryptographically pure way) to chase the $$$ and the average investor did not understand the implications enough to steer clear.

That said, Tether might be ok. They're probably in better shape that a lot of retail banks.

They're probably in better shape that a lot of retail banks

I really doubt that is the case. By their own numbers (which aren't audited) they have something like $200k of capital versus $70 bn of assets. Average retail bank would have more like $5 bn on a balance sheet that size. Their ability to absorb losses on their portfolio of venture bets / crypto-backed lending is virtually non-existent.

Of course, the advantage they have versus a retail bank is that they can just decline to pick up the phone if one of their customers wants to make a withdrawal ;-)

Any chance you could link me to where you get that $200k figure from?

They've services over $10bn of withdrawals in the last two weeks alone.

sorry, typo - $200 mm!
https://tether.to/en/transparency/

The ability to service withdrawals tells you about liquidity not solvency. They are deeply undercapitalised versus a traditional bank.

The ability to service withdrawals tells you about liquidity not solvency. They are deeply undercapitalised versus a traditional bank.

What are the rules for UK banks?

This graphic is a year old so might not be fully accurate anymore but its from a FT investigative piece so at least it is referenced but by my maths their cash reservers were in the area of 2bn rather than 200m (3.87% of $67bn) and thats not including treasury bonds and other deposits. Not to mention the corporate bonds etc.

Its worth also noting that Tether's lending portfolio brings huge cash returns which are used to provide more lending in the first instance, but for capital if needed.

I mean, its a fractional reserve. I get that. Its at risk of collapse. I just don't really buy the "they don't have enough cash to safely operate" opinion.

The chat about banks reminded of an anecdote of an old family friend who was asked by his boss on his first day in banking whether they should lend to a particular institution. After looking through the info he said definitely not and didn't expect the organisation to last the year. It was for their bank. #csb

Just looked up the rule for UK banks. UK banks must have 12.5 % in liquid assets. As far as I can tell, I think Tether meet that.

I just don't really buy the "they don't have enough cash to safely operate" opinion

There are two separate concepts here and it's important not to mix them.

1. Solvency
Surplus of assets over liabilities = equity. Solvency is the ability for the balance sheet to absorb asset losses without impairing depositors (i.e. house is not worth enough to pay off mortgage).

2. Liquidity
How quickly can you turn assets into cash to pay depositors that want their money back. Problem comes if you have liabilities that are repayable on demand (like current accounts) but illiquid assets (like mortgages).

Tether is more than fine on #2 (on their unaudited numbers) but I worry about #1. It's also worth noting that the business model has evolved hugely since it was originally set up as a 1:1 cash to stablecoin proposition.

In your chart they say they have 1.6% of their assets in digital tokens, = c. $1 bn. If those tokens go down in value by 20% they have no equity and their liabilities are worth more than their assets.

I'm fairly familiar with the concepts of solvency and liquidity.

On paper at least, Tether's assets exceed its liabilities. What we can't see is the quality or liquidity of all of those assets. They are unaudited as you say.

We do know for a certainty that they have over 12% in good quality liquid assets and cash which is the only reason I made the "probably safer than some banks" comment.

That said, I don't use Tether because nobody really knows the full picture. USDC is where its at.

Very good discussion about Tether's reserves here: https://forkast.news/should-tethers-shrinking-cash-reserves-investor-worry/