xraygoggles wrote: ↑Thu Apr 15, 2021 12:53 pm
Serious question: is there counterparty or smart contract risk keeping your $ on Aave? I have a small allocation of USDC there, but I'm wary of putting large sums (6 figures, for example).
Of course there is risk. There is definitely a chance of losing some money, maybe even all your money, that does not exist with a bank.
Start earning variable rates of around 8-10% on average. Right now the rate is 13%, as many are looking to borrow USDC and are willing to pay me for the privilege. Supply and demand. Just like at your bank, but in that case they make sure you receive crumbs. Not at Aave.
It's not just like your bank at all. I WANT the bank to do the paperwork and due diligence, and check credit history of people borrowing from the bank, partly using my money that I deposited with the bank. The bankers aren't loaning money out at 13%, and keeping 12.95% of it because they are evil. They don't make those loans because those are risky loans, with a high chance of default.
AAVE is nothing like a bank. It's a purely margin investing. The borrowers are all speculators, putting down 130% collateral in crypto-currency, so they can bet 230% on crypto-currency.
When the next bitcoin crash comes, many of those borrowers are going to lose a lot of money. Some of the lenders may get hurt too, if the crash is fast enough and sudden enough. As more and more people borrow on margin, the bigger the snowball effect will be when the crash comes, and the faster the crash will be, as margin calls cause more selling, causing prices to drop faster, causing more margin calls.
There is no risk-free 10%.
AAVE is in a good position. They won't lose any money. You, the lender, might... But not AAVE...
Seems more evil than normal banks to me. If normal banks could loan your money out and lose YOUR MONEY by making bad loans, and you couldn't do anything about it, that seems WORSE than the current system. Why is AAVE such a great replacement?
(and let's not mention that if a normal bank is robbed, you personally are made whole; if AAVE somehow gets robbed, you will lose it all, and too bad).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59