Can anyone explain how these work for USD swaps on Bitfinex from the prospective of the lender? I cant seem to find any clear information on the risk involved and how it really works. Right now on Bitfinex I can lend USD for around .14% per day. That seems like a very high ROI and am wondering how it can be this high, and what risk is involved.
The risk is bitfinex goes insolvent and you can't get your money back.
Its high interest because you dont know the credit risk of borrower. And they use your money for speculatiing
Bitfinex give margin accounts to their traders. So when the margined positions lose money bitfinex closes the trade. But if the traders account is underwater the trader is supposed to deposit more money. Its called a 'margin call'
You can imagine what happens if there is a rapid drop and bitfinex can't dump the trades fast enough. They become illiquid. If the traders cant deposit money or if bitfinex can't borrow more money to get liquidity then insolvency.
Similar thing as Bear Stearns or Lehman Bros
If asset price keeps going then everyone happy. But if if doesn't then big crash.
wow. what a complete BS summary for the reason of the interest rate.
-total return swaps are insured, of high drop of price. see faq!
-the high interest of 30% a year is because the people borrowing dollars from you and buying bitcoin speculate that the grow of bitcoin in one year will be higher. when you lend dollars you cant hold btc. vice vers the interest for swaps in btc is about 3%.
Wow you said the same thing I said in different words and Im BS?
You lend money to anonymous traders. That's why you can ask high interest.
How much insurance do they have? Isn't the insurance fund like 50K on 30M of swaps?
You have link about insurance? I couldn't find anything in faq
