Quote:
Originally Posted by opendoor
Not necessarily. I don't know the exact details, but I imagine they're using liquidity pools that contain a currency that's pegged to the USD.
Basically, cryptocurrency holders who want to earn a return can put crypto into liquidity pools. Those funds are then used to provide liquidity to conversions (like a company who needs to convert crypto to USD to pay Whole Foods). In return, the people providing the liquidity get a cut of the fees. And because one of the currencies is tied to the USD, there's no real currency risk because the crypto can be converted to USD (or an equivalent at least) almost instantly.
So the company might charge merchants 1% and give half to the people providing liquidity. Obviously 0.5% isn't much, but that's just one transaction. If you're loaning your crypto to a liquidity pool and it gets used 20 times over in a year, you get a 10% yield.
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I'm going to guess that all this works like clockwork as long as the Crypto is going up in value, its the massive drops that are causing the difficulty, all of a sudden theres a 1% loss between the order going in and the crypto being sold and the fiat repaid