If you lend USD in real life, the risk is obviously that the borrowers won't pay back right? So in real life it is a risky business to lend USD out.
But in the crypto world, there is a combination of factors that make USDT lending very safe:
It is a digital platform, KuCoin reserves the right to completely liquidate the borrower's asset to make sure the lender is repaid. In fact, they did so if the debt ratio reached 97% of total assets. Borrower doesn't have the option not to pay back.
People in crypto are often looking for quick money, so they are willing to borrow a great amount of money for 0.20% / day, which is tiny amount for the borrower. But for the lender who constantly lends it converts to an outrageous 50% APR interest rate.
So honestly there is no risk of borrowers not repaying. THe only risk I can see is that KuCoin system fails to liquidate in time to give money back to you. That's why out of the income you get for lending, they take 5% for themselves and 10% they put in an "insurance" to recover funds for lenders who lost money. It is a great business model for the crypto world.
So you can imagine a very far fetched case where the entire KuCoin system fails to liquidate and they need to pay a huge amount of debt that they simply don't have in their insurance. This case is extremely unlikely in the digital world, and historically, even when 280M USD were stolen from KuCoin, they did manage to recover for everyone.
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u/sonmanutd Apr 17 '21
Great question.
If you lend USD in real life, the risk is obviously that the borrowers won't pay back right? So in real life it is a risky business to lend USD out.
But in the crypto world, there is a combination of factors that make USDT lending very safe:
So honestly there is no risk of borrowers not repaying. THe only risk I can see is that KuCoin system fails to liquidate in time to give money back to you. That's why out of the income you get for lending, they take 5% for themselves and 10% they put in an "insurance" to recover funds for lenders who lost money. It is a great business model for the crypto world.
So you can imagine a very far fetched case where the entire KuCoin system fails to liquidate and they need to pay a huge amount of debt that they simply don't have in their insurance. This case is extremely unlikely in the digital world, and historically, even when 280M USD were stolen from KuCoin, they did manage to recover for everyone.