Crypto borrowing and staking networks
Jake Brukhman
4257

Good read, but yeah, two problems you need to have solutions for:

  • the fiat-volatility of the borrowed asset — and particularly the fact that the price of the borrowed asset may decrease at a higher rate than your staking reward. I’ll illustrate this with an example — I recently ran an XAP (Apollon) Masternode as a first experiment in the field. While they are solving a real pain point, have a working product and lots of users, two things happened over the 2 months I was staking — A. There was a reduction of the block reward, due to “too many” stakers somewhere in the middle of the period & B. The price of the asset itself dipped by like 10–15%, at a similar pace of the overall cryptomarket. While I gained ~3% of return in native tokens over the two months (still not bad, it would have probably reached something like 12–14% on yearly basis), in fiat terms I was close to even money. Additionally, another alternative price is worth mentioning — how your staking amount would perform against Bitcoin (or a basket, say Coinbase’s Index Fund). In my particular case there were a few dips, so I came a bit ahead, but that’s always a dimension worth considering, before deciding to do this form of arbitrage.
  • how do you collateralize the loan — now I was unfamiliar with the platform in your article, but going through it, they ask you to have 1.5x your borrow amount available as “Supply” (to insure against price volatility). From the assets they got right now, none of them is fiat-pegged, so this adds an additional layer of “alternative price” to the equation. What if you “supply” a bunch of ZRX and their price shoots through the roof, while you are borrowing BAT at an 8%?! It would be pretty much the same with any other current digital asset, except for fiat-pegged coins (Tether, CircleUSD, GeminiUSD, Paxsos), so I think this is where these platforms need to focus their attention on. You can now borrow cash against crypto (Nexo, SALT etc), high time to be able to do the opposite as well :)