You might ask yourself who deposits millions and millions of dollars into Defi? Take Compound and Aave for example, it has billions of deposits earn interest. These sites are like old style wild west banks with fortunes held in vaults only a hacking bandit away from being pillaged.
Where do all these billions come from. They are there for all to see in their smart contracts so its not flim-flam delivered by Blockfi and Celsius. I’m keen to know as I lodge a decent amount in Defi. So the answer is exchanges and the like with large deposits. This is why the deposit rate for Ethereum is negligible, who else would risk such vast sums funds for so little return?
However be that the case or otherwise, today there are interesting goings on in the Defi space.
First a little background. If you borrow a stable coin using some collateral, for example Ethereum, you can buy a token, say Solana, sell the Solana and you are now short Solana. Shorting can be for many reasons because hedging for example can be for many good reasons. However it caan also be for straight out speculation.
Here is a screenshot of todays USDc APY on Compound and this is in a non-incentivised pool.
Normally the rate is between 2-3%. To me this says there is big money out there shorting, using large deposits as collateral to borrow stable coin and swap it for tokens they then sell.
If the price falls, they sell the tokens for stable coin and repay the loan. A 20% apy borrow is high but not if you are expecting a pull back in days.
This is not to say there will be a dump, it could create a short squeeze, but it is good to be apprised of what is going on in the margins of the market. There is a lot of good news coming for the world economy on inflation, interest rates and QT. If good news is bad news for Crypto, that will drag on the ETF and ‘Halvening’ narrative.
Meanwhile anywhere you go its not a bad time to be a depositor.