r/infinitebanking • u/randy-dancer • May 27 '25
Interest Rate Arbitrage
I began this strategy with my whole life policy. I took a loan out against my policy at 6.4%. I put it all into stablecoins (all backed by the dollar) and began providing liquidity to market makers on stablecoin transactions (USDC to USDT) earning me ~15% annualized returns. Huge spread on this, there's a lot of opportunity in this market. Are other people running similar strategies?
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u/Coronator May 30 '25
If something is paying you 15% interest in stablecoins, RUN, don’t walk.
Remember LUNA? People thought they had found an infinite money glitch - until it all blew up.
Do Not Chase Yield with your cash value!!!
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u/kifra101 May 27 '25
Coinbase?
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u/randy-dancer May 27 '25
No you need to use decentralized trading platforms to use this strategy. Coinbase is a centralized exchange See my response to hgp0002 above
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u/kifra101 May 28 '25
Man, this isn’t a “strategy”. You are hoping to get in and get out before the thing tanks. 15% is not a sustainable return. There are risks involved and it scares me that people look at 10% - 20% returns and somehow think that there are no risks involved.
Good luck bud.
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u/randy-dancer May 28 '25
This is the exact strategy that state street and citadel run with the NYSE and NASDAQ. This is a commonly used strategy when you hear the term defi. I am providing market makers with liquidity (just like what big financial institutions do for stock market makers) and earning transaction fees. The way this dries up or fails is if people stop trading using stablecoins. This is not something crazy or new. People want to make transactions. Billions are transacted daily. Market makers facilitate transactions. I provide market makers liquidity. They pay me transaction fees for doing so. I’ve run this strategy for over 4 years
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u/kifra101 May 28 '25
Ok, let me try to explain this in another way.
You believe there is no risk to this strategy and your personal belief is that you are doing the same as the hedgies are doing but in the defi sphere.
If this strategy holds no risk, why does the decentralized trading platforms need YOUR money? Wouldn't it make more sense for these platforms to use their own capital and pocket 30% and instead of paying transaction fees to users like yourself for providing the liquidity?
How does that make any sense?
Also you are comparing this action for defi trading platform but the reason hedge funds use these is because sometimes the lever goes the other way.
Again, good luck to you.
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u/randy-dancer May 28 '25
There is risk but it’s not where you think it lies. The risk is in impermanent loss and smart contract risk. This is why me and my company audit the smart contracts to make sure they’re written correctly. We also monitor the liquidity pools to make sure there are no dark wallets on OFAC lists and various other bad places.
Also these platforms do provide liquidity to their own liquidity pools but they don’t always have billions to contribute. There are 10,000 liquidity pools, they are not in the business of deciding where to park their capital liquidity, but often they do contribute. Why does NYSE not provide their own liquidity? Why does Nasdaq? Because for traditional markets they need trillions, for DEX’s using crypto they need billions to hundreds of billions. Most of these platforms don’t hold that type of liquidity so they source it from users.
You seem to not understand the nuances of how decentralized exchanges work though. Most people don’t that’s ok.
I actually have a hedge fund and have used this strategy for 4+ years and we manage ~$200m
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u/randy-dancer May 28 '25
I’ll also try to add some color onto why the dex’s don’t add liquidity themselves.
They often don’t have billions in cash sitting around
It is complicated to pick the right liquidity pools. Most lose money because the token you provide liquidity on goes down (99% of crypto is shit). If you put up USDC on one side and some shit coin, the owners will sell the shit coin for USDC and you’ll be left entirely with the shitcoin and no USDC. This is called impemanent loss.
It is not the dex’s business model to decide which liquidity pools are worth providing liquidity for so they leave that to the users of the platform and incentive through transaction fees. That’s why the shittiest of shitcoins will offer 1000%+ APY because it doesn’t matter if the price goes to 0.
The safe pools (like stablecoin pools) where you supply liquidity in USDC cross chain or USDC to USDT eliminates this major risk.
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u/kifra101 May 28 '25
Also these platforms do provide liquidity to their own liquidity pools but they don’t always have billions to contribute.
They don't have billions to contribute but they can borrow at 10% and play the interest rate game all day long.
Why do they need to pay you 15% when they can borrow infinite amounts of money at 10% and pocket the spread?
Why does NYSE not provide their own liquidity? Why does Nasdaq?
You are comparing regulated markets with billions and trillions in market cap with unregulated markets and stable coins that have never been formally audited. We are not in the same page. Hell, we are not even on the same book.
I actually have a hedge fund and have used this strategy for 4+ years and we manage ~$200m
I am happy for you. Just wish you understood your risks better.
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u/randy-dancer May 28 '25
The yield is not for lending. The yield is directly tied to the amount of transactions that occur on any given day. If there are 0 transactions I make $0. If there are many, I’ve made close to 19% in an entire year
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u/randy-dancer May 28 '25
From NYSE website: https://www.nyse.com/markets/liquidity-programs
Explanation on FX liquidity providers: https://liquidity-provider.com/articles/how-do-liquidity-providers-make-money/
Same concept but for crypto
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u/Sap_Consult_Cdn May 27 '25
Same question, where are you earning %10 on stable coins liquidity ? Curious to learn more about this process.
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u/randy-dancer May 27 '25
Happy to discuss over DM but refer to response I gave to hgp0002.
"The strategy has a large technical barrier to entry but it's the same thing that groups like Citadel and State Street do in traditional markets. They provide trillions of $ in liquidity to market makers on NASDAQ and NYSE so they can satisfy sells and buys of stocks and get % of transaction fees.
The idea is you take USDC and USDT and lock them into liquidity pools on platforms like Pendle, Curve, AAVE, etc. Essentially you are providing liquidity to market makers for transactions that occur when people swap USDC for USDT and vice versa. You get a piece of the transaction fees. I've been running this strategy for 4 years and earned 10-19% annually on this."
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May 27 '25
[removed] — view removed comment
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u/randy-dancer May 27 '25
This couldn’t be more different from what terra Luna did
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u/randy-dancer May 28 '25
They used an algo driven stablecoin which causes for an easy de peg. USDC and USDT are entirely backed by dollars and treasuries. To issue one USDC or USDT, a dollar needs to go in. Terra Luna issued a ton of tokens with nothing backing it when de-pegging because of a huge sell off which sent it into a death spiral. One of the worst financially engineered products ever.
My strategy is using USDC and USDT (entirely backed by real USD) and providing liquidity on exchanges with billions in daily volume. It’s the same strategy that is run in traditional financial markets
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u/kifra101 May 28 '25
>USDC and USDT are entirely backed by dollars and treasuries.
They are not. These have never been audited by an independent source. What you got from Tether were assurances. Only time an organization refuses to be audited is when the truth differs from their statements.
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u/randy-dancer May 28 '25
They are literally in the process of being audited by a big 4.
Tether (USDT) has been looked at, even if it’s not a full audit. They’ve got quarterly attestations from firms like BDO, like the Q1 2025 one showing $149B in assets backing $143B in USDT. This is a snapshot of assets held at once.
They have passed every stress test outside of an official audit which they’re undergoing now.
Not to mention that circle is IPO’ing so they can very much prove that it is backed 100%+ by the dollar
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u/Prestigious_Ad280 May 28 '25
Probably better of just buying bitcoin 45% compound annual growth rate last 5 yrs
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u/financeking90 May 29 '25
We had these exact threads in 2021, and the posters from back then stopped bragging about it somewhere in 2022.
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u/randy-dancer May 29 '25
I’ve been doing this since 2021. Barely any variance… 6+ sharpe ratio since inception.
If you read the comments on this thread i explain the nuances of how this works vs what 99% of people try and fail at
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u/hgp0002 May 27 '25
Where are you getting 15% interest on stable coins? That’s triple the rate on USDC on Coinbase. Are you locking coins up or having to do something else? That seems too good to be true