Lot's of chatter about Thorchain Lending
And why would that be? Well it's because it's an awesome deal with a killer UX. Real Bitcoiners are waking up to this fact and trying to report on it, but guess what? The cult that is Bitcoin maximalism will not allow this.
The rules of maximalism are simple:
- Buy Bitcoin and only Bitcoin otherwise you're an idiot.
- Buying shitcoins is blasphemy.
- Interacting with other chains is wanton sacrilege.
- Even trying to talk about these things is FORBIDDEN.
- There is a 100% chance that anything that isn't Bitcoin will fail.
- All value in the universe will be sucked into the blackhole of Bitcoin.
This is the caliber of user we are dealing with.
The fact that Thorchain is a valid network creates visible cognitive dissonance.
Starting with the answer and working backwards.
When Bitcoiners hear of a shitcoin like Rune offering them 0% APR loans with no risk of liquidations: they don't question it. Rather they simply deny that it could possibly work without doing one second of research into it. This celebration of ignorance is palpable throughout all of Crypto Twitter. Sorry Bitcoin Twitter... because haven't you heard? Bitcoin and crypto are two completely separate things now. Bitcoin, not crypto... they reply.
Even if you're right you're wrong.
What I've come to realize from all this is that these people can't even follow the rules of their own logic. There are no exceptions with these people. They can't think of a single reason to use such a service, and if given one they'll do every mental gymnastic move in the book to avoid thinking about the hypocrisy. In this case we'll be looking at the issue of taxes.
Long term capital gains
Pretty much every time I've talked about crypto taxes it's been in the context of long term capital gains. The problem with long term capital gains is that the asset being sold has to be a year old before it qualifies. It is possible to get into that 0% tax bracket especially if crypto is our only source of income. Still, the 15% bracket is pretty common, and 20% might not be a lot but it's still a fifth of the total.
Short-term capital gains are taxed at ordinary income tax rates
The reason why short-term capital gains should be avoided is that it's taxed as normal income. Federal can get up to 37% in USA and that doesn't even count state taxes or the more fringe stuff like Medicare and social security.
So what?
Well Thorchain is offering 0% APR loans with collateral that can't get liquidated. Loans can't be taxed, meaning we can give ourselves loans using collateral that would otherwise be a short-term capital gains sale. Potentially in the worst case scenarios taking the Thorchain loan could prevent a 50% tax from being incurred, which is extremely noteworthy.
Thorchain lending vs 50% capital gains tax
Let's say we had $100k worth of Bitcoin and we want to sell it and get that money into our bank account. With Thorchain lending we could deposit the $100k in the contract and give ourselves a loan of $50k. This is tax-free because we have to pay back the debt. Selling the Bitcoin also results in a net gain of $50k after the taxes are paid. The difference is with Thorchain lending our $100k in Bitcoin can still be reclaimed if we pay back the $50k loan, whereas just selling it results in a guaranteed loss of the collateral forever.
So it doesn't even matter if Thorchain completely fails in this situation and we lose all the collateral. The result would be exactly the same >> $100k into $50k after everything is said and done. But if Thorchain doesn't systemically collapse that collateral will always be there waiting for us. Paying it back could be a problem and incur capital gains if we have to sell crypto to accomplish such things, but there are ways around this as well (like taking out another loan to pay back an old one; AKA refinancing). And even if a capital gains tax is incurred by paying back the debt it will always be a long-term one because this tool allows us to convert all short-term positions into long-term ones with the lending protocol.
Bitcoiners don't care, and it defies all logic
The deal that Thorchain is offering is so good it would be stupid and downright bullheaded not to take it in certain situations. This type of lending can be used to hold Bitcoin in a contract until it becomes a long-term capital gain tax after 1 year held.
Bitcoiners believe that every other project should fail except Bitcoin. What better way to make Thorchain fail than to use this lending protocol in which the Thorchain network is shorting Bitcoin against Rune? If they wanted Thorchain to fail they should use ironically Thorchain, but they have no idea how it works and refuse to learn how it works so here we are. Parroting tired catch lines like, "If you can't explain the yield you are the yield," and "What about Celsius?"
Conclusion
Thorchain is offering the best deal ever on the lending protocol. In certain situations it has 0% risk (given a high tax rate considering the alternative of selling the collateral). It can also be used as a vessel to convert assets that would normally be short-term capital gains into long-term while still being able to leverage the asset into liquidity before it is actually sold. Best of all worlds, that.
Bitcoiners who aren't drinking the cult's Kool-Aid are coming around to this fact and trying to tell others about it, but the cult is not having any of it. Maximalists would sooner pay taxes to the government and purchase securities than interact with a decentralized system offering the best deal possible. It's embarrassing at this point. History will not be kind to these zealots. It's the ultimate midcurve strategy.