DeFi platforms pay more for borrowing than they charge in fees, according to an analyst. Trading pools of US dollar-pegged stablecoins also offer high interests.
The incorporation of new products and services in the decentralized finance (DeFi) ecosystem is increasingly attracting capital and new users. At the beginning of June, the total locked capital associated with the different DeFi services exceeded USD 1 billion and reached USD 1,512 on June 21st, with an increase of 55% during that week, according to data from DeFi Pulse.
This accelerated growth leads more users to become interested in cryptocurrency loans, attracted by an increasing interest rate. Analyst Tony Sheng recently posted a thread on Twitter, giving concrete instructions for allegedly earning 100% annual interest, through investments in decentralized loans, on various DeFi platforms.
Sheng states that in traditional finance banks can obtain an interest of 0.01% for whom they offer loan capital, but some options can even pay up to 1%. On the contrary, those who are seeking loans in the DeFi sector are not only willing to pay much higher interest rates but also offer additional bonds to borrowers.
The reason for those bonds is in the stimuli that DeFi platforms offer for borrowing, according to Sheng. “When someone requests a loan at @compoundfinance, they receive a kind of cashback. The greater the loan, the greater the cashback.” the platform delivers this stimulus to the applicant of the loan in COMP, the Compound token, says the analyst.
That stimulus is now higher than the fee for the loan, according to Sheng. This implies that an increasing number of people are interested in requesting loans, only to receive the stimulus payment.
On the other hand, borrowers also receive incentives of up to 50% on the interest that they earn on the loans, states Sheng. To reach a 100% annual interest rate, borrowers take the money pledged as collateral security and lend it back. USD holders can earn a 100% annual interest rate instead of the 0.01% that their bank offers, which represents a profit between 100 and 10,000 times the amount invested.
Sheng notes that the bonds depend on the different types of digital USD or US dollar-pegged stablecoins. He advises that to trade these different versions, it is best to do it on a specialized exchange.
For example, participants go to @Curvefinance with their funds and contribute to a pool. They not only earn fees on their funds, but they can also offer loans from the funds contributed and earn additional interest. The demand for both loans and trades of digital USD variants is so high that the contribution to the pool has come to produce returns of 200%.
There are different ways to make substantial profits on DeFi, using the so-called “farming yields”. However, such a wide profit margin also makes it important to be aware of the risks. After explaining the steps to reach a 100% return on the investment in DeFi, Sheng warns of the risks.
By Alexander Salazar