The entire crypto ecosystem is a ponzi
The crypto ecosystem has grown massively in the last three years. Many of those participating in it have made life-changing amounts of money – on paper, or perhaps more accurately on computer. But the problem with paper gains is that they tend to evaporate like the morning mist when the market turns. The crypto market turned towards the end of 2021 and is now firmly in bear territory. Bitcoin has fallen from above $60,000 in November 2021 to barely $16,000 now. For anyone who bought Bitcoin near the top, that is a mammoth real loss. And even though it is not a real loss for people who bought Bitcoin in the bear market of 2018 and have HODLed for years, it is still a mammoth paper loss. No-one likes to see an unrealised financial gain wiped out by the markets before they can claim it.
The interest rates on these retail-focused crypto deposit accounts were far above those offered by banks.
Other platforms found another way of persuading people that it was safe to put their money into crypto. Fiat money in banks has FDICinsurance (or the equivalent in other countries). So crypto platforms such as Voyager entered into relationships with FDIC-insured banks and then marketed fiat deposits on the platform as FDIC insured. This was, strictly speaking, true – but depositors were only covered if the bank failed, not if the platform did. Not that Voyager cared. It cheerfully told its customers that their deposits were insured if either the bank or the platform failed. When the platform failed in June 2022, customers understandably demanded their FDIC insurance payout. But there was no payout. Voyager had lied. FDIC was not liable for losses arising from failure of the platform.
And it was not just lending platforms that claimed their deposits were FDIC insured. Crypto exchanges, notably Coinbase and Gemini, told their customers that fiat deposits qualified for FDIC “pass-through” insurance. FDIC has to my knowledge never confirmed that fiat deposits on any crypto exchange or platform qualify for either direct or pass-through insurance. But for well over two years, crypto exchanges and platforms got away with marketing themselves as FDIC-insured. It wasn’t until the summer of 2022 that FDIC made a serious attempt to end mis-selling of FDIC insurance by crypto companies.
These are the crypto ecosystem’s main stablecoins, readily obtained from crypto exchanges. All you have to do is deposit some real dollars. Then you trade them for stablecoins, feed the stablecoins into the thirsty maw of Tron DAO Reserve or Binance, sit back and collect your returns, which are of course far better than anything you can get in a conventional bank or fund. And it’s all entirely risk free, because these stablecoins are dollars, really – aren’t they?