Ask HN: How to think about crypto lending?
46 comments
It's a way of accessing liquidity while holding on to your asset's appreciation and avoiding capital gains tax on it. If you're very long on your crypto holdings, but you still need money, that's ideal way of accessing it imo.
But many people confuse borrowing with lending, companies like blockfi offer you both. If you borrow to get yourself into leverage, you're running risk of liquidation. If you're simply lending it, you can make back 3-7% back interest in your crypto and blockfi and other places will provide that crypto as liquidity to institutions (presumably to short-sell).
You can also do it through DeFi protocols, MakerDAO is the most popular, you can see some stats at daistats.com (roughly 3B+$ in collateral and debt). It creates this weird cycle where if the price goes up, you can borrow against your increased collateral value to buy back even more which in turn increases the price further. I suspect there's some things slowing that dynamic at the moment, but it certainly plays some role.
And I should also add that this is a fairly common way for wealthy people to access liquidity while keeping their assets, I believe Larry Ellison is one of the famous example of this[1], but now it's democratized for anyone who has cryptocurrencies.
1: https://www.steubencourier.com/article/20140926/BUSINESS/309...
But many people confuse borrowing with lending, companies like blockfi offer you both. If you borrow to get yourself into leverage, you're running risk of liquidation. If you're simply lending it, you can make back 3-7% back interest in your crypto and blockfi and other places will provide that crypto as liquidity to institutions (presumably to short-sell).
You can also do it through DeFi protocols, MakerDAO is the most popular, you can see some stats at daistats.com (roughly 3B+$ in collateral and debt). It creates this weird cycle where if the price goes up, you can borrow against your increased collateral value to buy back even more which in turn increases the price further. I suspect there's some things slowing that dynamic at the moment, but it certainly plays some role.
And I should also add that this is a fairly common way for wealthy people to access liquidity while keeping their assets, I believe Larry Ellison is one of the famous example of this[1], but now it's democratized for anyone who has cryptocurrencies.
1: https://www.steubencourier.com/article/20140926/BUSINESS/309...
The tax thing is mostly to avoid the taxable event that arises when you sell crypto (if you’re up, which most people will be right now) + keeping exposure to the crypto in question.
The way it works (~roughly) is that instead of selling the crypto, you deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral.
The way it works (~roughly) is that instead of selling the crypto, you deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral.
Bitcoin is often referred-to as pristine collateral. It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors.
I don't think "depositing into a smart contract" is any more necessary than someone moving out of their house when that's used as collateral.
Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan.
I don't think "depositing into a smart contract" is any more necessary than someone moving out of their house when that's used as collateral.
Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan.
> It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors.
This is a simplistic idea of what auditors do.
Auditors do more than verify "they have $50M in their bank account". They're also there to verify more complicated things like "they haven't promised that $50M to someone else already".
This was a major issue with Tether, for example.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
This is a simplistic idea of what auditors do.
Auditors do more than verify "they have $50M in their bank account". They're also there to verify more complicated things like "they haven't promised that $50M to someone else already".
This was a major issue with Tether, for example.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
> set of UTXOs as collateral, and the moment any of them move, which is easily monitored
not possible. Once collateral is moved, it's moved. You can't even call it collateral if the other person can easily take it away in front of your eyes. It's only collateral if it's locked up and has a dispute period (see: payment channels collateral)
not possible. Once collateral is moved, it's moved. You can't even call it collateral if the other person can easily take it away in front of your eyes. It's only collateral if it's locked up and has a dispute period (see: payment channels collateral)
> Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan.
That seems like a shoddier implementation of what the smart contract would do
That seems like a shoddier implementation of what the smart contract would do
> deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral.
Makes sense in theory, but are people actually doing this? Can you point us to more info about it?
Makes sense in theory, but are people actually doing this? Can you point us to more info about it?
Plenty of people doing it, defi exploded in use last summer mainly driven by collateralized debt positions in combination with lending tokens.
Lock up ethereum -> borrow dai against it -> lend dai out and earn interest on it, withdraw whenever you want.
There are more complex yield farming strategies to get the best rates on your assets, leveraging them through debt positions and lending. There are pools to automate this like yearn.
There are now sites like alchemix where you can lock up your collateral into a lending pool, borrow against it, and the yield on the locked collateral pays off the borrowed debt position. Self-repaying loans!
Multiple times over the past year I have locked eth, taken $s to pay rent/buy stuff. Then come back later paid back the owed $ and get my eth back.
https://defipulse.com tracks the value locked in different protocols, it was less about $0.5 billion this time last year, now over $40 billion.
https://compound.finance/ https://oasis.app https://yearn.finance https://aave.com
Lock up ethereum -> borrow dai against it -> lend dai out and earn interest on it, withdraw whenever you want.
There are more complex yield farming strategies to get the best rates on your assets, leveraging them through debt positions and lending. There are pools to automate this like yearn.
There are now sites like alchemix where you can lock up your collateral into a lending pool, borrow against it, and the yield on the locked collateral pays off the borrowed debt position. Self-repaying loans!
Multiple times over the past year I have locked eth, taken $s to pay rent/buy stuff. Then come back later paid back the owed $ and get my eth back.
https://defipulse.com tracks the value locked in different protocols, it was less about $0.5 billion this time last year, now over $40 billion.
https://compound.finance/ https://oasis.app https://yearn.finance https://aave.com
When I read about DeFi I imagined it to be something very different from this. This does not sound sustainable at all. It does sound like a confirmation that this is growing very rapidly.
A system where borrowers post $250k collateral to borrow $100k, in theory, sounds more sustainable than traditional lending models where a handful of large borrowers defaulting can start a domino effect until a central bank steps in and punishes taxpayers to bail out lenders that took on too much risk.
It's interesting to watch the progression of DeFi projects as they're being developed. Being an early adopter in experimental financial technologies has its own set of risks, but at least these risks don't affect non-participants.
It's interesting to watch the progression of DeFi projects as they're being developed. Being an early adopter in experimental financial technologies has its own set of risks, but at least these risks don't affect non-participants.
You're looking for www.daistats.com, 3B$+ worth of collateral locked and debt issued. And because the blockchain is public, you can actually inspect every vault, every action they took, how much debt they have, etc.
This is one such example of an 8-figure credit line using 4.5k worth of Bitcoin: https://defiexplore.com/cdp/9167.
In case it wasn't clear, DAI is a stablecoin, 1DAI=1$.
This is one such example of an 8-figure credit line using 4.5k worth of Bitcoin: https://defiexplore.com/cdp/9167.
In case it wasn't clear, DAI is a stablecoin, 1DAI=1$.
That looks to me like it was 4500 BTC not $4500... (or in this case, WBTC which are approx the same price as BTC). Or am I reading this wrong?
Yep, that's why I said "4.5k worth of Bitcoin", I meant 4500BTC.
HN being famously pedantic 4500BTC is 4500BTC or "4.5k Bitcoin". "4.5k worth of Bitcoin" implies whatever that would be "worth" in your local currently at some snapshot point in time.
over $5 billion in deposits: https://aave.com/
After watching a few interviews with BlockFi[0], I come to understand:
There are probably hedge funds or other large institutions who want to trade USDC or BTC without owning it. I am not a professional investor, so I don't understand quite why they wouldn't just buy USDC or Bitcoin outright and trade it...
But, every market needs liquidity and you basically are providing it by lending out your assets. There are some protocols emerging which lets you keep ownership of your coins and still lending them out.
I would go to BlockFi or other 2-3 bigger institutions (maybe even Kraken or Coinbase) and lend USDC out for currently 10%.
I don't know about taxes much, it depends on the country. All crypto is tax free in Germany after 1 year, so people mostly hold for a year and sell.
I am lending out USDC because, well, where do I get 10%? Also, lending out BTC means you can still keeping it while profiting from it.
Few people here understand that people actually don't want to sell Bitcoin since it seems to be a hard asset, and you don't want to get rid of it. So you can profit from the gains on the BTC price WHILE ALSO profiting around 5% a year of it. It's like a dream.
I don't expect this to go on for ever, but the market needs liqudity and its a perfect time to do so.
[0] https://www.realvision.com/shows/the-interview-crypto/videos...
There are probably hedge funds or other large institutions who want to trade USDC or BTC without owning it. I am not a professional investor, so I don't understand quite why they wouldn't just buy USDC or Bitcoin outright and trade it...
But, every market needs liquidity and you basically are providing it by lending out your assets. There are some protocols emerging which lets you keep ownership of your coins and still lending them out.
I would go to BlockFi or other 2-3 bigger institutions (maybe even Kraken or Coinbase) and lend USDC out for currently 10%.
I don't know about taxes much, it depends on the country. All crypto is tax free in Germany after 1 year, so people mostly hold for a year and sell.
I am lending out USDC because, well, where do I get 10%? Also, lending out BTC means you can still keeping it while profiting from it.
Few people here understand that people actually don't want to sell Bitcoin since it seems to be a hard asset, and you don't want to get rid of it. So you can profit from the gains on the BTC price WHILE ALSO profiting around 5% a year of it. It's like a dream.
I don't expect this to go on for ever, but the market needs liqudity and its a perfect time to do so.
[0] https://www.realvision.com/shows/the-interview-crypto/videos...
>There are some protocols emerging which lets you keep ownership of your coins and still lending them out.
how is it possible? When you lend your assets, someone can give it to other person. You cannot keep ownership of something others control?
how is it possible? When you lend your assets, someone can give it to other person. You cannot keep ownership of something others control?
Overcollaterization and multi-sig. For example on HodlHodl you can lend USDC where the borrow posts more collateral than the loan. The lender, borrower, and HodlHodl each own one key in a 2-of-3 multi-sig. If there's a dispute then HodlHodl will resolve it.
I believe he might be referring to flash loans, essentially the borrowed money is returned to you within the same transaction that borrowed it + interest.
I don't agree with calling flash loans loans. Money isn't borrowed, as you don't posses them even for a second. Instead it's more like "offer me an atomic transaction that will make me money, and I will run it with my liquidity". See: i'm not giving you my liquidity, i merely choose to use your strategy which is atomic, and you cannot change your mind and steal the money halfway (as in borrowing).
> I am lending out USDC because, well, where do I get 10%?
The US stock market has returned more than that on an annualized basis over the past decade.
(yes, I realize past performance isnt future returns in stock markets, but returns are hardly riskless in crypto either)
The US stock market has returned more than that on an annualized basis over the past decade.
(yes, I realize past performance isnt future returns in stock markets, but returns are hardly riskless in crypto either)
Fixed income is different than stocks. 10% no matter what is sometimes what you want instead of: Maybe 15% or maybe -10% a year.
I don't personally have much experience in the field, but one of my old IRC buddies ended up getting fleeced this way. He used to lend Bitcoin quite frequently, which normally turned out fine - until someone anonymously made 3 accounts to max out the borrow limit, and then never paid it back.
It ultimately comes down to accountability, which Bitcoin is designed to distribute among it's users. The more accountability you add to the system, the more pointless your cryptocurrency becomes. All of this is basically impossible without some sort of middleman facilitating the transaction, hopefully with collaterals on either side. Again though, it's kinda a self-defeating premise.
It ultimately comes down to accountability, which Bitcoin is designed to distribute among it's users. The more accountability you add to the system, the more pointless your cryptocurrency becomes. All of this is basically impossible without some sort of middleman facilitating the transaction, hopefully with collaterals on either side. Again though, it's kinda a self-defeating premise.
Most sites are now requiring 2x collateral for a loan, IE put up 10k in BTC and get back 5k in USD (as a stablecoin). This only becomes a problem if the price up BTC rapidly drops 50%, which is possible and has happened in the past, but is also probably less likely due to increased institutional investments.
The risk may be worth the 8-10% interest.
The risk may be worth the 8-10% interest.
After a 10x rise in less than a year, a 50% decline is definitely not a remote risk. Anyone taking this style of loan should be prepared to face a margin call and avoid liquidating collateral at the bottom.
I think you are talking about the first wave of BTC lending sites, which had faulty business model. These days they only give out loans with collateral. No one is giving those loans any more that don't have collateral.
There are tax related benefits to taking a loan (in fiat currency) using your cryptocurrency as collateral. You may also be betting that your cryptocurrency goes up in value at a higher rate than the interest you're paying on your loan. So if you'll end up paying less interest than the amount of taxes you'd pay by selling and the amount of appreciation you'd be missing out on, then the loan makes sense financially.
Most companies that do this take custody over your collateral, and often times lend it out (pocketing some or all of the interest earned). This is called rehypothication, and is very risky. I do know that Unchained Capital is one company that let's you take a loan using your bitcoin as collateral without giving them custody of your coins nor rehypothicating them. You have a 2 of 2 multisig wallet where you hold one key and they hold one key.
Most companies that do this take custody over your collateral, and often times lend it out (pocketing some or all of the interest earned). This is called rehypothication, and is very risky. I do know that Unchained Capital is one company that let's you take a loan using your bitcoin as collateral without giving them custody of your coins nor rehypothicating them. You have a 2 of 2 multisig wallet where you hold one key and they hold one key.
I'd be worried about counterparty risk.
With crypto, one cannot simply short by temporarily minting a new coin. If you borrow a coin from me and sell it on to someone else, there is no way, if you default, for me to claw it back. Someone more-clever may have found a way to mitigate that risk somehow, but I don't immediately see one.
With crypto, one cannot simply short by temporarily minting a new coin. If you borrow a coin from me and sell it on to someone else, there is no way, if you default, for me to claw it back. Someone more-clever may have found a way to mitigate that risk somehow, but I don't immediately see one.
I'm pretty impressed with some of the DeFi projects that are being developed. There have been some growing pains with issues like contract bugs and liquidation events during high volatility, but they seem to be improving.
MakerDAO has a pretty well thought-out economic model that lends out stablecoins to borrowers that provide crypto collateral: https://youtu.be/wW1IEZeWY4k
Seems like a good way to get access to spendable funds to buy something like a car without losing crypto exposure and subjecting yourself to capital gains taxes.
It doesn't work as a way of leveraging your money with a small "down payment" like you'd do with a traditional auto loan or home mortgage.
MakerDAO has a pretty well thought-out economic model that lends out stablecoins to borrowers that provide crypto collateral: https://youtu.be/wW1IEZeWY4k
Seems like a good way to get access to spendable funds to buy something like a car without losing crypto exposure and subjecting yourself to capital gains taxes.
It doesn't work as a way of leveraging your money with a small "down payment" like you'd do with a traditional auto loan or home mortgage.
Almost all crypto lending (at least the defi/smart-contract variety) is collateralized lending. There's still a sort of "counterparty" risk, in that the management has to operate price feeds/risk algos to make sure the collateral stays safely about the loan value.
You keep your Bitcoin as collateral with a lender. They give you a loan which you can use for whatever you please. You pay off the loan with cash flow from other activities. You never need to sell your Bitcoin for liquid money then and your Bitcoin continues to appreciate. The only sketchy part is "not your keys, not your Bitcoin". The lender can make off like a bandit with your Bitcoin, so you need to be careful.
There's alot more to it and details on all the different platforms, I would take your questions away from HN though. People here are very anti crypto.
There's alot more to it and details on all the different platforms, I would take your questions away from HN though. People here are very anti crypto.
"The lender can make off like a bandit with your Bitcoin, so you need to be careful."
Uh oh. See the section in the article on "re-hypothication", where the same collateral is behind multiple loans. One problem with these things is that a small but widespread down period can turn into a collapse. Like the mortgage collapse in 2008.
Anything that's paying 7% a year on borrowed funds is worrisome. No institutional investor will pay 7% a year for money.
Uh oh. See the section in the article on "re-hypothication", where the same collateral is behind multiple loans. One problem with these things is that a small but widespread down period can turn into a collapse. Like the mortgage collapse in 2008.
Anything that's paying 7% a year on borrowed funds is worrisome. No institutional investor will pay 7% a year for money.
> No institutional investor will pay 7% a year for money.
The borrowing rate can be much higher than 7% for short positions.
There are many different institutional investment strategies that are willing to incur wildly varying rates of interest.
The borrowing rate can be much higher than 7% for short positions.
There are many different institutional investment strategies that are willing to incur wildly varying rates of interest.
Please senpai give me advice where to find real info.
In your citation [0], table 3. "No counterparty risk" on bitcoin is listed as "High" and "Moderate" for treasuries. It also lists real estate and gold as having more volatility than bitcoin.
I would question some of those assertions. Especially the ones about counterparty risk.
I would question some of those assertions. Especially the ones about counterparty risk.
Haha yes I noticed that. That made me wonder whether the numbers are any good, but those should normally be a little bit harder to exaggerate.
Ya. I'd really question how you can get 5%-10% yield in some of these deals. Risk and yield are generally very correlated. How much more counterparty risk are you really taking compared to treasuries which yield nearly 0%?
Lots of times in finance when things are too good to be true it's because they are.
Lots of times in finance when things are too good to be true it's because they are.
Yeah that seems wrong. The solvency of the borrowers, and by extension the lending smart contract would be my biggest worry, especially while crypto price is crashing.
There's a lot of decentralised finance clone websites with nice ui's , but also a lot of centralised ones doing the same thing. all offering very good interest rates
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To the IRS, from a taxation standpoint, Bitcoin isn't treated any differently than any other tangible asset. Whether real estate, art work, gold bullion, FOREX, or practically anything else the IRS position is more or less "bought, sold, gains and anything else whatever it's worth in USD, we'll tax it with current law". Sure there are very specific loopholes (for real estate development, famously) but those are an entirely different topic.
I'm not the most sophisticated in tax avoision strategies but other than straight up illegal evasion I don't see how Bitcoin changes the picture at all. Oh yeah and as far as Bitcoin having it all on a public ledger that just makes their job easier. Don't even start with tumblers or whatever else... Taxing authorities have been tracking down income since the days of Rome. They know what they're doing. I believe the current stats for IRS enforcement measures are they return $4 for every $1 spent on investigation, recovery, and prosecution. When it comes to a government agency they likely provide the best ROI (and I'm betting by a large margin).
Simply put, if you're evading taxes with bitcoin (or virtually any other method) and they decide to even take a peek at you you'll likely get caught and upgrade your charges to criminal tax evasion. While there is some cherry picking of cases to game this statistic last I checked the Government has a 97% conviction rate in Federal cases. Once again, unless you're "too big to fail" if they investigate evasion you're going to prison.
As for loans, you've ALWAYS been able to take out loans against other assets - it's a common leverage tactic and some would argue it's stupid not to. Loans against secured (real) assets typically come with comically low interest rates because there's less risk to the lender (the asset can always be seized). Think mortgage vs credit card.
I haven't looked at this crypto lending yet but I would imagine that as part of the loan either the private keys of the wallet or the wallet itself would need to be placed in escrow (or similar). If you default on your loan the escrow company just moves it to your lender (much like a bank, storage facility, etc receiving a lein or judgement against you would). It's just that in the real world for physical assets the bank has to pay for the police to show up at your house and kick you out or seize the asset at gunpoint. Once again, Bitcoin just makes their job easier.
When comparing interest rates to potential asset appreciation it's borderline stupid to have liquid capital sunk in to an asset you can loan against. Sure you're kind of rolling the dice in some regard but if over the term of the loan the asset appreciates more than what you paid in interest you made money from the loan. Trump famously got into trouble with this in the 80s/90s with some EXTREMELY risky leverage strategies.
But at level, as was said then and now: "When you owe $100,000 to the bank you have a problem. When you owe $100,000,000 to the bank they have a problem."
EDIT: When talking about escrow I completely forgot about smart contracts and the like. Either way it's quite possibly the easiest collateral to recover.
I'm not the most sophisticated in tax avoision strategies but other than straight up illegal evasion I don't see how Bitcoin changes the picture at all. Oh yeah and as far as Bitcoin having it all on a public ledger that just makes their job easier. Don't even start with tumblers or whatever else... Taxing authorities have been tracking down income since the days of Rome. They know what they're doing. I believe the current stats for IRS enforcement measures are they return $4 for every $1 spent on investigation, recovery, and prosecution. When it comes to a government agency they likely provide the best ROI (and I'm betting by a large margin).
Simply put, if you're evading taxes with bitcoin (or virtually any other method) and they decide to even take a peek at you you'll likely get caught and upgrade your charges to criminal tax evasion. While there is some cherry picking of cases to game this statistic last I checked the Government has a 97% conviction rate in Federal cases. Once again, unless you're "too big to fail" if they investigate evasion you're going to prison.
As for loans, you've ALWAYS been able to take out loans against other assets - it's a common leverage tactic and some would argue it's stupid not to. Loans against secured (real) assets typically come with comically low interest rates because there's less risk to the lender (the asset can always be seized). Think mortgage vs credit card.
I haven't looked at this crypto lending yet but I would imagine that as part of the loan either the private keys of the wallet or the wallet itself would need to be placed in escrow (or similar). If you default on your loan the escrow company just moves it to your lender (much like a bank, storage facility, etc receiving a lein or judgement against you would). It's just that in the real world for physical assets the bank has to pay for the police to show up at your house and kick you out or seize the asset at gunpoint. Once again, Bitcoin just makes their job easier.
When comparing interest rates to potential asset appreciation it's borderline stupid to have liquid capital sunk in to an asset you can loan against. Sure you're kind of rolling the dice in some regard but if over the term of the loan the asset appreciates more than what you paid in interest you made money from the loan. Trump famously got into trouble with this in the 80s/90s with some EXTREMELY risky leverage strategies.
But at level, as was said then and now: "When you owe $100,000 to the bank you have a problem. When you owe $100,000,000 to the bank they have a problem."
EDIT: When talking about escrow I completely forgot about smart contracts and the like. Either way it's quite possibly the easiest collateral to recover.
Never take legal, financial or tax advice from anyone you aren't paying for it.
The best advice I have ever received on all three subjects is free from people who have experience. Paying people is usually when I get screwed in billables.
Good point.
Some people online like to imply that paying for advice means you can blindly trust it. It's always a good idea to DYOR regardless.
Something that you get with communities like HN and Reddit is being able to read replies to comments pointing out bad advice.
Some people online like to imply that paying for advice means you can blindly trust it. It's always a good idea to DYOR regardless.
Something that you get with communities like HN and Reddit is being able to read replies to comments pointing out bad advice.
Side question (non crypto related), does paying for it automatically makes the advisor legally liable for the advice in most 'advanced' jurisdictions?
Generally (unfortunately) "not really". For a tax return, for example, the preparers information is on it but you still sign it.
Again, generally speaking they carry insurance much like a doctor has malpractice insurance.
The risk for them is causing enough damage (and the resulting insurance payouts) rendering them uninsurable which is generally a career ending state to be in.
Truly egregious stuff can end up with disbarment and other certifying bodies revoking stuff. Again much like a doctor screwing up to the point where they lose their license.
Then, like anyone else, criminal liability is always a possibility if the situation calls for it.
Again, generally speaking they carry insurance much like a doctor has malpractice insurance.
The risk for them is causing enough damage (and the resulting insurance payouts) rendering them uninsurable which is generally a career ending state to be in.
Truly egregious stuff can end up with disbarment and other certifying bodies revoking stuff. Again much like a doctor screwing up to the point where they lose their license.
Then, like anyone else, criminal liability is always a possibility if the situation calls for it.
It looks like this is growing very rapidly (e.g. [0], though not sure how reliable this source is), so it seems significant to the evolution of the market. It looks like mostly people are lending to themselves (so that they effectively have leveraged/borrowed bitcoin) rather than lending to others.
Is this a tax loophole that makes bitcoin very attractive for people trying to keep their money "off-shore"? Is it a tactic to get more bitcoin for the same amount of dollars? Is this a sign that bitcoin is maturing and starting to back economic activity (after all, paper money also started as bank IOUs on gold)? I'm not sure whether to see this as a major red flag, or whether legitimate new markets are forming here.
[0] https://ambcrypto.com/how-did-bitcoin-lending-become-so-popular/