This sure is becoming fun, like a shitcoin easter egg hunt, everyday another platform cannot push out their obligations far enough and their redemption rate gets too high for their operating capital to handle and boob, suddenly they shut down withdrawals through "extreme market conditions".
These CEFI firms launched mostly between 2017-19 and began well capitalised, but used that money to subsidize returns so users would dump their coins and they could increase their assets under management.
Users were used to a certain rate and they now needed to get it from other places, the business model of lending to exchanges and collecting fees can only get you so far, so these platforms either directly or indirectly started to have greater exposure to DEFI
Coins got locked up, coins got rehypothecated and when the deleveraging came around, we saw who actually had backing. Celsius was the big one to clamp up, BlockFi has been bailed out by FTX, Babble Finance has shut its withdraws and now CoinFlex joins the club.
Custodial risk isn't properly compensated
As you can now tell, the 6,10 or 17% some applications offered for your coins was clearly grossly mispriced as many people risk losing 100% of their capital after handing it over to services who have done who knows what with them?
The idea of using a service that uses your capital to earn you interest is nothing new, it's the old banking model applied on top of bitcoin, shitcoins, and stablecoins.
The only difference is there is less liquidity, more risk and less regulation and responsible use of that capital. It's a game of musical chairs and you just hope that the next turn you'll find a chair (person to liquidate into) as more people come after you looking for that return.
Eventually, the music stops and someone has to clean up, see what's left, and take account of the damages, and sometimes that person is you, as many are now finding out.
If you're keen on getting rid of your CoinFlex account you can find instructions here
This won't be the end
I still think there is more pain to be felt, as the market trades sideways and fofers very little opporuntity to finance your way out of it, either through market operations or raising capital so I don't see how many of these companies don't go under or get acquired.
What I do think is a few people will learn that self-custody is the best return and that chasing yield is a waste of time, yield is a fiat component needed to counter-act debasement, bitcoin doesn't have that so it doesn't need yield. Anything above the CAGR is pure greed and I feel nothing for people who are greedy.
I do think that once this is all over, people will STILL use the services that remain, there wil always be pigs that are willing to get slaughtered.
But don't say we didn't warn you.
As for the companies involved, how the story will end, is anyone's guess
Sources:
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