Binance | Lending turned upside down by savvy investors
added several new features to further diversify the business and increase the user base.
One of these newly launched products is the subscription-based loan product Binance Lending, which will be launched in conjunction with the new product Margin Lending.
In short, Binance Lending is a product that allows subscribers to lend Binance money, while the Margin Lending product allows users to borrow money on Binance.
An expensive mistake for Binance?
For most traditional lending institutions, the interest rate charged on loans to borrowers is always lower than the rate they offer to their creditors and investors. However, Binance’s loan product is different and may turn out to be risky as Binance may have to pay more than originally expected.
Shortly after the new products were announced, shrewd traders seemed to have found a gap through which they could borrow at a lower interest rate on Binance and lend back to Binance at a higher rate. There is a limitation, however. So let’s break down the interest rates that Binance offers to properly portray this potential gap.
In its current form, Binance users can select three possible assets for their credit products: Binance Coin (BNB), Tether (USDT), and Ethereum Classic (ETC). These bear interest at an annualized interest rate of 15%, 10% and 7%, respectively, with maturity dates 14 days apart – the current period between 29th August and 11th September 2019.
Earn more than you lose
Here’s the gap: By taking out a Binance margin loan, users can borrow USDT at an annualized rate of 10.0375%. If this borrowed USDT is converted into BNB and returned to Binance at a 15% interest rate, users could easily make a 4% + gain as the BNB markets do not crash during the loan period.
The total subscription cap on Binance’s loan product is 200,000 BNB, 5 million USDT and 20,000 ETC. If all products were fully subscribed, Binance would have to shell out 1,150 BNBs, 19,178 USDTs and 53 ETCs, which equates to an interest of more than $ 48,000 at the time of writing.
This could lead to significant losses for Binance. For example, if the total $ 5 million USD is being funded by multiple users through Binance’s margin loans, Binance would earn $ 19,250 over a 14-day period. However, it would pay out $ 28,770 for the same amount over its BNB loan product.
This could be beneficial to Binance only if the BNB rates rose during each term of the loans. This has led some to speculate that this is not really a gap, but a strategy in which Binance pumps the value of Binance Coin – one in which it appears to be pretty good.
What do you think of the new gap? Is it an intentional plan to pump BNB or an example of a costly mistake by Binance? Leave your thoughts in the comments below!
Latest posts by Florian - HIClub