Binance Crypto Lending Program Sparks Controversy
Popular cryptocurrency exchange Binance has released a crypto lending platform that allows users to earn a significant amount of guaranteed interest on their crypto holdings without having to expose themselves to any risk.
Despite its promising nature, some investors are skeptical about Binance’s latest program, and are warning investors to use caution when engaging in anything that offers “guaranteed returns” of up to 15%.
Binance’s Crypto Lending Program Draws Ire from Some Investors
Binance announced their latest initiative in a recent blog post, explaining that investors can now employ their idle crypto holdings to earn passive income by lending out their holdings over a fixed term.
According to the post, the interest rates vary based on which crypto is lent out, with BNB – Binance’s cryptocurrency – offering the highest interest payout at 15%.
The first lending phase will be conducted on a first-come-first-served basis, and the term to maturity will be a mere 14 days, with the interest being paid out immediately after the loan matures.
Although this certainly does seem like an enticing program, some analysts are expressing caution when it comes to being excited about this type of program.
Larry Cermak, the Director of Research at The Block, explained in a recent tweet that promising guaranteed interest rates with no risk is “never a good idea.”
“‘The interest rate for each product is guaranteed, so your crypto balance will always grow, regardless of how the market moves.’ – CZ… Promising a guaranteed interest rate is never a good idea,” he said.
Binance CEO Hits Back, Claims Program’s “Guaranteed Returns” is a Simple Matter of Mathematics
Despite some analysts expressing caution when it comes to engaging in any program that offers guaranteed returns, Binance’s CEO, Changpeng Zhao, explained in a recent tweet that all lending at Binance goes to margin borrows who have to pay interest on their positions, which makes it easy to guarantee a fixed interest payout to lenders.
“Lending on @binance goes to Margin borrowers, who pay the interests. Simple. Very different from other guaranteed-return schemes. We don’t have to look for another place to invest. That’s why Margin is out first. Spartans get it,” he explained.
It is highly likely that the initial lending quota will be filled quite rapidly, and assuming it is met with great popularity, this may become a popular program that other crypto trading platforms with margin trading features begin engaging in.
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