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Crypto Lending
The Story
Crypto winter has come for crypto lending platforms.
What are those?
They lend crypto to borrowers, like a bank does with cash, and pay interest to people who deposit their crypto with them. Borrowers can put up their crypto as collateral to take out loans in stablecoins or fiat currency (think: US dollars). Lending platforms you might've heard of: Celsius, Voyager, and BlockFi.
Wait, didn’t they…
Yep. In July, Celsius and Voyager filed for bankruptcy after the loans they made to a crypto hedge fund couldn’t be repaid. BlockFi borrowed money from the crypto exchange FTX to stay afloat, but that only made things worse. Hint: Last month, FTX filed for bankruptcy, bringing BlockFi down with it.
What’s the deal?
These platforms are often interconnected. They lend crypto to one another (not just customers) and often make high-risk bets that don’t always pay off. So when one crypto lending platform can’t repay its loans, investors might panic and start pulling out their money. Then lenders begin calling in their loans, which can’t be repaid. At which point, a crypto lending platform might freeze customer withdrawals to prevent a run on the bank (hi, Voyager). This can lead to a loss of confidence in crypto, a crash in crypto markets, and investors losing money.
theSkimm
Crypto lending offers a new way to invest outside of traditional finance. Investors can make money from crypto lending platforms, but they can lose it, too. Especially if the platform they use goes under.
And Also…This
Who’s getting grilled by congress…
FTX. The House and Senate held hearings this week to understand how the collapse of the crypto exchange could impact the broader crypto market, and what lawmakers can do to protect investors. Notably absent from the hearings: Sam Bankman-Fried, aka SBF, who was arrested in the Bahamas on Monday after criminal charges were filed against him.
Who’s saying ‘please keep HODLing’...
Binance. The world’s largest crypto exchange temporarily halted customer withdrawals of the stablecoin USDC this week. This came after customers withdrew $1.9 billion from the platform in a 24-hour period. Why? A not-so-glamorous audit might have spooked investors.
What’s giving the crypto market a boost…
Cooling inflation. Bitcoin and Ethereum rose on Tuesday after Consumer Price Index data showed that inflation might be slowing down.
What’s having a Lehman moment…
Thing to Know
ZKP
Aka zero-knowledge proof.For many crypto fans, privacy is a part of the appeal. Enter: ZKP, a type of cryptography that allows one person (the prover) to convey to another (the verifier) that a piece of information is true without revealing exactly what that info is. Example: A customer can confirm they’re the appropriate age to access an age-restricted product (like alcohol),without actually revealing how old they are by using an algorithm that takes in data and returns an answer of either ‘true’ or ‘false.’
Pop Quiz
Question: How many satoshis make up one Bitcoin?
100,000
100
100 million
1 million
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‘Crikey.’
Pop Quiz
Answer: C. 100 million. Hint: A satoshi is the smallest unit of a Bitcoin. Like a penny to a US dollar. They’re typically used to perform smaller transactions, and named after Satoshi Nakamoto, the pseudonymous creator of Bitcoin.
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