Topic: Bitfinex: total return swap (Read 974 times)
The catch: 1) Exchange risk -- Bitfinex operates under hazy regulation and has questionable KYC policies. They could be shut down or run with the money. 2) Outstanding swaps vs. bid side liquidity is very high. In a high-volume decline, where bids cannot sustain liquidations of leveraged longs, lenders risk losing money lended that cannot be recouped through liquidation.
Can someone please explain how total return swaps for USD function from the prospective of the person offering the liquidity? It seems like the interest rate per day is extremely high and I cant see how it could be so high to offer money per day without some risk involved for the person doing the lending. How do these things work? I want to start offering USD swaps but just cant get good info on it.
The risk you are taking is that you are sending hard cash to a company about which you know almost nothing and so have to take pretty much entirely on trust and which could be closed down at any time by some over zealous jack booted regulator. And also don't forget to factor in tax on the income you earn. For most people it is easier and less stressful just to buy and hold BTC with a view to capital appreciation (if BTC doubles in 18 months you would be better off than lending the same cash on bitfinex).
All that said, it certainly has a place in a high risk portfolio
Can someone please explain how total return swaps for USD function from the prospective of the person offering the liquidity? It seems like the interest rate per day is extremely high and I cant see how it could be so high to offer money per day without some risk involved for the person doing the lending. How do these things work? I want to start offering USD swaps but just cant get good info on it.
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