Conversation

Dan Held
@danheld
Replying to
@danheld
4a/ [October>November Changelog] TL;DR - Not much. Last tweet storm I covered: - SEC and lending - New participants and rates But not much has changed since then. Here's a recap for those who didn't see it.👇
1
16
Dan Held
@danheld
4b/ SEC and Lending The SEC has stated that they consider a wide variety of lending platforms as violating securities law. Because of this Coinbase shut down its plans for a lending service after.
1
19
Dan Held
@danheld
4c/ After talking to a few of the lending platforms in the space, there seems to be a few factors that increase risk of enforcement: - If they service consumers vs accredited investors - If they continue to service clients in jurisdictions that have asked them to stop
1
18
Dan Held
@danheld
4d/ However, the SEC has little desire to make these platforms go bankrupt. It is unlikely they would shut these platforms down in a rushed manner that would cause massive losses for consumers. The most at-risk platforms for enforcement seem to be: Celsius, Nexo, and BlockFi
4
24
Dan Held
@danheld
4e/ Other updates: - Rates have stabilized around 2% - FTX added - A new service was added that I can't disclose. What's really cool is that they only lend my coin to overcollateralized borrowers which dramatically reduces risk.
1
24
Dan Held
@danheld
5/ Where does the yield come from? Most of the borrow is going to the GBTC arb trade, shorting, DeFi, or the futures “cash and carry trade.” (for all lending platforms)
2
26
Dan Held
@danheld
6/ Risk assessment: When you lend your coins to Ledn, BlockFi, etc. you have to trust that they’ve evaluated counter party risk properly, which includes: - Financials of borrower - Collateral requirements (typically 30-110%) - Trading strategy
1
29
Dan Held
@danheld
7/ As everyone knows, March, December, and May were insanely volatile months. Here’s how they operated through the volatility: - Deposits and withdrawals all processed normally (1-2 business days) - “zero losses in the lending book” - All of the products had near 100% uptime
1
20
Dan Held
@danheld
8/ Note: there may be no benefits to diversification as you do not know the counterparty overlap between lenders (ex: Ledn and BlockFi).
2
20
Dan Held
@danheld
9/ Note: I am not a fan of lending/borrowing services that have a token. There is no reason why you need a token as it introduces regulatory and structural risk: - Cred blew up earlier this year - Custody issues with Celsius - NYAG sent notices to Celsius and Nexo
5
26
Dan Held
@danheld
Replying to
@danheld
11/ Lending is by far the easiest way for a regular trader to earn yield and at size if you’ve got more coin (ex: call strategies suffer from poor liquidity). Next I’ll dig into covered calls 👇
2
22
Dan Held
@danheld
12/ What are “covered calls?” It’s an option trade which has the owner of the underlying asset (“covered”) sell their upside above a certain price (“strike”) in exchange for a payment (“premium”) The more likely that event occurring, the higher the premium (very simplified)
2
19
Dan Held
@danheld
13/ So how does that look with some real numbers? (Pull 11/29 split spread) 2/28 $80k strike = $2,070 premium (21% annualized) 2/28 $100k strike = $1,280 premium (13% annualized) Annualized is a bit of misnomer -you don’t know what the yield will be the next time you sell calls
1
13
Dan Held
@danheld
14/ Historically I’ve been selling 2-3x current price strikes 2-3 months out and earning an average of 4-6% The quotes above are quite a bit closer to the money. Because of how intense Bitcoin's bull run has been, I'm not selling any new calls for the time being.
3
16
Dan Held
@danheld
15/ With covered calls you only have exchange custody risk, which is some of the lowest risk you can have. One advantage of covered calls is that if you sell a 1yr+ duration call AND it gets assigned (price > strike) then your premium is taxed as long term cap gains (in the US)
3
15
Dan Held
@danheld
17/ Coinjoins allow for Bitcoiners to obfuscate their coin holdings through mixing them with other Bitcoiners. In order to create a market of individuals willing to mix, there are makers and takers. Makers post availability to mix, takers pay the makers for that convenience.
1
14
Dan Held
@danheld
18/ Lightning Pool Most simplistically, it is an order book for lightning liquidity (or a channel marketplace) done in a non-custodial manner (note: there is a coordinating server).
3
14
Dan Held
@danheld
19/ DLCs (Discrete Log Contracts) Two parties can bet on a certain outcome based on x/y/z condition being met. For example, what the price of Bitcoin might be tomorrow.
2
14
Dan Held
@danheld
20/ The way it works is that two parties send funds to a multi-sig address. In order to settle the bet, an oracle (a party that pipes in outside data like the price of Bitcoin) signs the contract with a signature that corresponds to the hash of the winning outcome.
2
14
Dan Held
@danheld
21/ I was given a sneak peek into the
@AtomicFinance
beta. What they’re looking to do is create DeFi options trading (specifically covered calls) on top of Bitcoin using DLCs. Super cool.
4
23
Dan Held
@danheld
22/ This is done in a self-custodial manner, so you maintain control over your coins more so than on a centralized options exchange like LedgerX. Basically, you’re making a bet on the price of Bitcoin being above or below a certain price (strike) on a certain date (expiry).
6
26