Ecoinometrics - Where is this yield coming from?
On assessing risk for yield generating products in crypto.
In today's edition of the newsletter:
How to think about risk when getting yield on your digital assets.
Aggressive shorts on the Bitcoin CME derivatives.
A dollar cost averaging calculator (click on this link to access the calculator).
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Where is this yield coming from?
Here is the deal. You deposit your crypto assets in centralized institution or lock them in a smart contract. In exchange of taking this risk you receive some yield on those assets.
Is it worth it? That depends on the amount of risk you take of course.
We don’t have that much data to go about measuring this kind of risk though. So let’s try to reason from first principle today.
Crypto allows you to be your own bank. That means you can hold the keys to your digital assets and no one else which doesn't have those keys can take them away from you.
If you have proper procedures in place to safeguard your keys the solution of being your own bank is maximally secured in terms of counter party risk.
This kind of setup allows you to sleep well at night knowing that your assets are safe.
But you know what else is nice?
Getting your assets to work for you while you sleep. That's the appeal of getting yield on your crypto. However it comes at the cost of relinquishing control over those assets. Even if this is supposed to be only temporary this is a risk you have to take.
A lot of people have been taking this risk in the past couple of years. A lot of people have been burned by this over the past couple of months.
But have you ever wondered where this yield that you receive comes from?
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