The reputable crypto exchange Gemini has a program (Gemini Earn: https://www.gemini.com/earn ) wherein users can loan out their crypto assets and earn interest for participating. Best I can understand, Gemini loans your assets through (to) a company called Genesis (https://genesistrading.com/lending/), who loans the crypto to exchanges who need it for liquidity or market making....or something.
On upside, this is a way to make an extra ~3%/yr on bitcoin or ethereum. Interestingly, they offer 7.4%/yr for participating with a few stablecoins, meaning the value of the coins does not change and you make a "guaranteed" 7.4%/yr.
The fine print states the the loan is not secured; borrowers post no collateral. So, if I participate, I understand that the coins I loan out may never be returned. This brings several questions to mind and I'd love to hear some thoughts:
1) Is there any way to assess the level of risk here? How can we possibly determine if this is a good investment? With bonds, there is some calculable measure of risk via credit ratings, but this program seems 100% opaque beyond vague promises that borrowers are heavily vetted.
2) Given that these loans are all aggregated and packaged on the Gemini side, to the point where we can withdraw our "loaned" assets at any time, How would Gemini distribute the losses if a borrower defaults on repayment?
3) Other thoughts?
Submitted August 12, 2021 at 01:04AM by 15pH https://ift.tt/3iEiDsK
