Is it accurate that on these platforms one can deposit funds, borrow funds (using the deposit as collateral), deposit those borrowed funds, borrow more funds (using the deposited borrowed funds as collateral), etc. and this can 3-5x their money, and the only risk is a bankrun?
This seems.. insane. What’s the interest rate and payment terms on these borrowed funds? I have $100k cash and need to buy a house.. maybe I just crypto loop to get 500k.
That's exactly what looping refers to. See my other comment for an idea of what these numbers probably look like.
The interest rate usually varies based on available liquidity in the pool, so if they were borrowing 292M of stables, their interest rate could vary anywhere from 0.5-150% APY, depending on the protocol parameters and the available liquidity.
Usually (negative) APY when borrowing stablecoins (edit: on ethereum) would be closer to 1%, but as you can imagine, when lots of people withdraw liquidity to engage in the same kinds of tactics, the overall liquidity available for borrowers decreases, and then the interest rate adjusts to incentivize depositers (who can sometimes have stablecoin (positive) interest rates of >100%.
For reference, I deposited 200 USD of a stablecoin into a pool with low liquidity on a more niche lending protocol on a blockchain that is known for attracting people more inclined to leveraging, about 18 months ago, and I can withdraw 550 USD now based on the interest rate fluctuations (likely due to lots of people going long against the stables in that same period)
Right now on Compound, one of the most popular (and safest) lending protocols, one can get 9% APR for supplying USDC (which I believe to be one of the safest stablecoins)
As things turn around into more bearish territory, people will leverage the other direction and that interest rate will go down significantly (back to more like 1%) as people effectively short ETH and other tokens using the same mechanics (deposit a bunch of USDC, borrow a volatile crypto-asset, sell it for USDC, deposit more USDC, etc. Then if the price of that crypto-asset goes down significantly, you can repay your borrow balance at a fraction of the cost in USD terms)
> This seems.. insane. What’s the interest rate and payment terms on these borrowed funds? I have $100k cash and need to buy a house.. maybe I just crypto loop to get 500k.
Just to address this directly, you're probably much more likely to get liquidated than to be able to bring your balance up to 500K when leveraging. In fact, if you're leveraged very close to the liquidation rate, with a lot of money at stake, people may even make plays to move the market to get you over the liquidation line and then liquidate you.
I mentioned turning 200 USD into 550 USD based on a stablecoin deposit, but that was both incredible luck on my part (I deposit as things were starting to flip from bearish to bullish) as well as being a lower-liquidity protocol where interest rates could fluctuate much more wildly.
To be clear, my earnings would have been a much smaller percentage had I deposited 100K USD, because the increased liquidity in that protocol would have resulted in much lower supply rates due to much higher liquidity, so I may have seen something more like 5-20% APR in that meantime (which is still not bad to be fair).
Had I leveraged even a little bit (going short against a volatile crypto-asset basically), I would have certainly been liquidated as prices for those have mostly all mooned in that time.
Looping doesn't just let you walk away with the money, as you necessarily have to redeposit it into the protocol to borrow more against your deposit.
If you're considering leveraging because you need to buy a house, you almost definitely shouldn't leverage unless the 100K is worthless to you without another 400K on top of it, and therefore you don't mind the much more likely scenario where it gets evaporated by market fluctuations
You can't crypto loop to $500k in outside funds. Let's say you can borrow fraction (1-r) of deposits (for some small r, could be 0 - in fractional reserve banking monetary expansion, r is the "fractional reserve").
At time t0, you deposit 100 ETH, and borrow 99 ethereum worth of USDT.
You loop that back into 99 ETH, and redeposit it. You have 199 ETH of assets, (99 EHT at time t0 of USDT) of debt (that you basically owe to yourself) - 100 ETH net, what you started with.
You can now borrow an additional 98.1 ETH worth of USDT that you could spend on a house - less than the 100ETH you started with.
Or you could redeposit that, to have 297.1 ETH total. But now, you can only borrow an additional 97.2 ETH.
The total leverage on your ETH/USDT trade goes up, but the amount you can take out of the system (to, say, buy a house) can only stay the same or go down at each step through the loop.
So to clarify for those who don't care to know about defi, 2 people made on-chain leveraged bets with up to 2X leverage (which isn't a ton compared to what some people do).
If they are up 120M when ETH has gone up ~26% since it's low point of the last 30 days, they must have deposited ~150M to start with.
Looping 3 times, and borrowing ~80% of their deposit value each time (pretty close to the max for most defi protocols), they would have borrowed (likely in a stablecoin) 120M, then 96M, and finally 76M, giving them a total deposit of 442M worth of ETH against a borrow of 292M of the stablecoin.
After ETH went up by 26%, their initial 442M deposit is now worth 557M. Had the value of ETH gone down 21% at any point from the beginning of their levered position, their initial stake of 150M in ETH would have been liquidated by the protocol, so this is an incredibly risky play as you can imagine
The fact that such a large position likely moves the market does at least make it a little bit safer for them, but by that same token, unwinding their position will move the market in the other direction just as easily (so they might only see a 110M in profit if they tried to unwind entirely, at this article was written)
> The fact that such a large position likely moves the market does at least make it a little bit safer for them
I would not be surprised if they had some inside information about some big moves that were likely to move the market in some way. I doubt their entry and exit timing was randomly chosen.
Marginally related (this paper explains the mechanisms of a DeFi exploit which are the same mechanisms used generally in this 'strategy'):
https://arxiv.org/abs/2003.03810
What do you think leveraging is? You are using your deposit (ETH) to increase exposure to an asset (more ETH). The process is just more manual compared to a traditional market because crypto.
Nobody gains or loses anything tangible until they liquidate. Assuming they manage to do so without crashing the market, it would be those people who bought in at the high because "Ethereum is going up".
It’s zero-sum when the game ends because there are no more buyers. That hasn’t happened yet. We don’t know how much more money will be spent on Ethereum or who the buyers will be. We don’t know how much they will win or lose.
If it’s zero-sum but we don’t know how many terms are being summed or their values, then we can’t do the math and the equation isn’t very useful for making predictions.
Assume a financial asset that keeps going up at a steady rate, people buy and sell it all the time but everyone who sold did it at a higher price. Who is losing money in that case?
Asset prices are based on what people believe the future will bring. If the price drops because of some event, and you haven’t traded, you have the same asset as before and only its price has changed. You’re poorer than you thought, but nobody gained anything from you. (You haven’t traded!) People just changed their minds about the price. It’s the same going up.
When you trade, that’s different. If you sell at a higher price then the gain comes from the new buyer. If the price goes down then you lost some of what you paid to the previous seller.
Also, in this case, there are loans. Someone had Ethereum and lended it out. They got paid interest, but lost out on gains that they could have had if they didn’t make the loan. (They could have gotten more money from a buyer later.)
It's not a zero sum system. There are capital inflows.
Who loses are people who voluntarily sell. They think they're making a good decision, so does the counterparty, and only time will tell. Every deal you make with someone is both of you doing something you perceive as in your best interest. Speculative investment particularly is a high risk game. Often, it is a good decision on both parts, because peoples needs differ.
> It's not a zero sum system. There are capital inflows
It's still zero sum from a dollars in / dollars out perspective. Delayed consequences doesn't make a zero-sum game positive sum. (And to be clear, all money systems are zero sum if we ignore transaction costs without accounting for their economies.)
DeBank is a sort of social network, for wallets, so I've linked the two below so that you can clearly see what is going on here.
What nobody here is discussing, is the fact that these wallets already have $1.2B and $1.8B worth of funds in them. Depositing $150m is not a big risk for them.
If you are into DeFi, it is obvious they know what they are doing. These wallets are using money to make money, pure and simple.
Genuinely curious- In what sense is the risk calculated? I understand that the leverage factor is known but fundamentally isn’t this still just a bet that eth will rise? And if it falls then won’t the loss be multiplied by the same leverage factor?
Obviously you can research the eth market and form a view but you can also research horse racing form and the odds themselves should be a fair calculation indicator if the betting market is working well - so it seems fair to suggest that this is in the same category as a horse racing bet.
As the article says, Ethereum needs to move down 60% for them to be liquidated.
This is unlikely to happen overnight (if they are finance pros, they do compute probabilistic models), leaving them time to unwind their position when situation changes.
While $120M is a huge amount of money, it doesn't necessarily mean they got a huge percentage return. I don't see how much they staked to get this return. The article does mention that the two wallets are collectively worth $3B, and that they used 1-2x leverage in this bet. I'm curious how much they actually bet on this.
Was it a 10% overnight return? That's a fantastic return, but plenty of traditional market gamblers have pulled that off. Doesn't diminish their success in any way. I'm trying to figure out how much they gained as a percentage of the gambled amount, as the actual dollar amount doesn't mean much.
Yeah, it's interesting that the way Ethereum works make it possible to see exactly how the trade worked and how much it made, but "traders with huge resources made a leveraged bet and won" is something that happens constantly.
Rather, a common belief is that over a long time horizon, the debasement of USD will hurt buying power, and that BTC and friends will benefit from that.
Not such an oddball belief if you look at the change in the value of a dollar over the last century.
Yes they have been doing this since Ethereum existed. Maybe it's HN discovering this achievement, considering crypto people are explaining very basic functionality to this website's community
Good for them if they manage to convert those imaginary numbers to actual money. With actual I mean real world money with which you can pay your bills, taxes etc, not the funny internet money.
It's still a Ponzi. And writing about this thing in the same terms as legitimate financial trades will not change the fact that it's all a meaningless charade by habitual gamblers.
This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.
One time I made nearly 20 times my money in one night of playing poker
I mean, I used to have a poker game pretty regularly with some friends and friends of friends. We'd basically just play until one person got all the chips, but we also allowed buying back in once if you were out before 11 PM. One night when it was especially big, we had a lot of people playing and a bunch of them bought back after going out quickly, and I happened to win that night.
Also, the buy-in was $5, so I won like $95 total
Notice how you can make the story sound really impressive or really piddly depending on how you decide to count it. 20x ROI sounds crazy! Winning less than a hundred bucks doesn't. Also, probably over all the games we ever played I came out about even or maybe a little ahead. I'm okay at poker compared to my friends who played. Not amazing, better than average maybe. But there was no amount of losing that would have represented an untenable risk for me.
Similarly, this article is describing the gains from a single bet in isolation. When you say $120M it's, well, more money than most normal humans will see in their lives (though probably the average income here is more like the top quartile of US incomes), but when you say it's like maybe a 2X ROI on that bet, which represented like sub-5% of the assets of just the wallets making the bet, which I doubt even represents the total assets of whoever owned those wallets (Which could also be jointly-owned), it's a lot less impressive. I'm not sure why it's even worth reporting on unless your goal is to push Ethereum through this kind of number-jiggling for the credulous
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[ 2.7 ms ] story [ 123 ms ] threadThis seems.. insane. What’s the interest rate and payment terms on these borrowed funds? I have $100k cash and need to buy a house.. maybe I just crypto loop to get 500k.
The interest rate usually varies based on available liquidity in the pool, so if they were borrowing 292M of stables, their interest rate could vary anywhere from 0.5-150% APY, depending on the protocol parameters and the available liquidity.
Usually (negative) APY when borrowing stablecoins (edit: on ethereum) would be closer to 1%, but as you can imagine, when lots of people withdraw liquidity to engage in the same kinds of tactics, the overall liquidity available for borrowers decreases, and then the interest rate adjusts to incentivize depositers (who can sometimes have stablecoin (positive) interest rates of >100%.
For reference, I deposited 200 USD of a stablecoin into a pool with low liquidity on a more niche lending protocol on a blockchain that is known for attracting people more inclined to leveraging, about 18 months ago, and I can withdraw 550 USD now based on the interest rate fluctuations (likely due to lots of people going long against the stables in that same period)
Right now on Compound, one of the most popular (and safest) lending protocols, one can get 9% APR for supplying USDC (which I believe to be one of the safest stablecoins)
As things turn around into more bearish territory, people will leverage the other direction and that interest rate will go down significantly (back to more like 1%) as people effectively short ETH and other tokens using the same mechanics (deposit a bunch of USDC, borrow a volatile crypto-asset, sell it for USDC, deposit more USDC, etc. Then if the price of that crypto-asset goes down significantly, you can repay your borrow balance at a fraction of the cost in USD terms)
Just to address this directly, you're probably much more likely to get liquidated than to be able to bring your balance up to 500K when leveraging. In fact, if you're leveraged very close to the liquidation rate, with a lot of money at stake, people may even make plays to move the market to get you over the liquidation line and then liquidate you.
I mentioned turning 200 USD into 550 USD based on a stablecoin deposit, but that was both incredible luck on my part (I deposit as things were starting to flip from bearish to bullish) as well as being a lower-liquidity protocol where interest rates could fluctuate much more wildly.
To be clear, my earnings would have been a much smaller percentage had I deposited 100K USD, because the increased liquidity in that protocol would have resulted in much lower supply rates due to much higher liquidity, so I may have seen something more like 5-20% APR in that meantime (which is still not bad to be fair).
Had I leveraged even a little bit (going short against a volatile crypto-asset basically), I would have certainly been liquidated as prices for those have mostly all mooned in that time.
Looping doesn't just let you walk away with the money, as you necessarily have to redeposit it into the protocol to borrow more against your deposit.
If you're considering leveraging because you need to buy a house, you almost definitely shouldn't leverage unless the 100K is worthless to you without another 400K on top of it, and therefore you don't mind the much more likely scenario where it gets evaporated by market fluctuations
At time t0, you deposit 100 ETH, and borrow 99 ethereum worth of USDT.
You loop that back into 99 ETH, and redeposit it. You have 199 ETH of assets, (99 EHT at time t0 of USDT) of debt (that you basically owe to yourself) - 100 ETH net, what you started with.
You can now borrow an additional 98.1 ETH worth of USDT that you could spend on a house - less than the 100ETH you started with.
Or you could redeposit that, to have 297.1 ETH total. But now, you can only borrow an additional 97.2 ETH.
The total leverage on your ETH/USDT trade goes up, but the amount you can take out of the system (to, say, buy a house) can only stay the same or go down at each step through the loop.
If they are up 120M when ETH has gone up ~26% since it's low point of the last 30 days, they must have deposited ~150M to start with.
Looping 3 times, and borrowing ~80% of their deposit value each time (pretty close to the max for most defi protocols), they would have borrowed (likely in a stablecoin) 120M, then 96M, and finally 76M, giving them a total deposit of 442M worth of ETH against a borrow of 292M of the stablecoin.
After ETH went up by 26%, their initial 442M deposit is now worth 557M. Had the value of ETH gone down 21% at any point from the beginning of their levered position, their initial stake of 150M in ETH would have been liquidated by the protocol, so this is an incredibly risky play as you can imagine
The fact that such a large position likely moves the market does at least make it a little bit safer for them, but by that same token, unwinding their position will move the market in the other direction just as easily (so they might only see a 110M in profit if they tried to unwind entirely, at this article was written)
I would not be surprised if they had some inside information about some big moves that were likely to move the market in some way. I doubt their entry and exit timing was randomly chosen.
https://archive.ph/EFGPO
Even cashing 1/2 of it would pay for pretty much any lifestyle a person might want...
This is approximately what Bill Hwang was indicted for doing [1].
[1] https://www.wsj.com/articles/archegos-founder-and-cfo-charge...
One model is "total assets go up, no one loses".
Another is "those who want to use the assets in the future will have to pay more for them".
If it’s zero-sum but we don’t know how many terms are being summed or their values, then we can’t do the math and the equation isn’t very useful for making predictions.
When you trade, that’s different. If you sell at a higher price then the gain comes from the new buyer. If the price goes down then you lost some of what you paid to the previous seller.
Also, in this case, there are loans. Someone had Ethereum and lended it out. They got paid interest, but lost out on gains that they could have had if they didn’t make the loan. (They could have gotten more money from a buyer later.)
Who loses are people who voluntarily sell. They think they're making a good decision, so does the counterparty, and only time will tell. Every deal you make with someone is both of you doing something you perceive as in your best interest. Speculative investment particularly is a high risk game. Often, it is a good decision on both parts, because peoples needs differ.
It's still zero sum from a dollars in / dollars out perspective. Delayed consequences doesn't make a zero-sum game positive sum. (And to be clear, all money systems are zero sum if we ignore transaction costs without accounting for their economies.)
What nobody here is discussing, is the fact that these wallets already have $1.2B and $1.8B worth of funds in them. Depositing $150m is not a big risk for them.
If you are into DeFi, it is obvious they know what they are doing. These wallets are using money to make money, pure and simple.
https://debank.com/profile/0x28a55c4b4f9615fde3cdaddf6cc01fc...
https://debank.com/profile/0x741aa7cfb2c7bf2a1e7d4da2e3df6a5...
Finance has been doing the same for ages, so these people may come from a very traditional finance background...
Obviously you can research the eth market and form a view but you can also research horse racing form and the odds themselves should be a fair calculation indicator if the betting market is working well - so it seems fair to suggest that this is in the same category as a horse racing bet.
This is unlikely to happen overnight (if they are finance pros, they do compute probabilistic models), leaving them time to unwind their position when situation changes.
This is basic margin math.
Was it a 10% overnight return? That's a fantastic return, but plenty of traditional market gamblers have pulled that off. Doesn't diminish their success in any way. I'm trying to figure out how much they gained as a percentage of the gambled amount, as the actual dollar amount doesn't mean much.
Rather, a common belief is that over a long time horizon, the debasement of USD will hurt buying power, and that BTC and friends will benefit from that.
Not such an oddball belief if you look at the change in the value of a dollar over the last century.
I have $1 asset.
I have $2 asset and $1 loan.
I have $3 asset and $2 loan.
It's still a Ponzi. And writing about this thing in the same terms as legitimate financial trades will not change the fact that it's all a meaningless charade by habitual gamblers.
Other people are willing to pay for it, so it doesn't really matter how you feel it's "funny internet money", it's a currency of value.
Curious, what are those "legitimate" financial trades you are speaking about?
This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.
I mean, I used to have a poker game pretty regularly with some friends and friends of friends. We'd basically just play until one person got all the chips, but we also allowed buying back in once if you were out before 11 PM. One night when it was especially big, we had a lot of people playing and a bunch of them bought back after going out quickly, and I happened to win that night.
Also, the buy-in was $5, so I won like $95 total
Notice how you can make the story sound really impressive or really piddly depending on how you decide to count it. 20x ROI sounds crazy! Winning less than a hundred bucks doesn't. Also, probably over all the games we ever played I came out about even or maybe a little ahead. I'm okay at poker compared to my friends who played. Not amazing, better than average maybe. But there was no amount of losing that would have represented an untenable risk for me.
Similarly, this article is describing the gains from a single bet in isolation. When you say $120M it's, well, more money than most normal humans will see in their lives (though probably the average income here is more like the top quartile of US incomes), but when you say it's like maybe a 2X ROI on that bet, which represented like sub-5% of the assets of just the wallets making the bet, which I doubt even represents the total assets of whoever owned those wallets (Which could also be jointly-owned), it's a lot less impressive. I'm not sure why it's even worth reporting on unless your goal is to push Ethereum through this kind of number-jiggling for the credulous
4% would be a better way of stating their gains.