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Coincheck will start term deposit service of XRP with 5% interest an year

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I'm trying to get my head around this, and come to the conclusion that I just don't buy this story.

First of all, as correctly mentioned by others already - you need to take into account the failure risk of the exchange. Now, sure - fiat banks can (and do) fail. But the current status of the XRP exchanges is FAR more risky than any of the current fiat banks. So a 5% annual interest including a mark-up to compensate for that risk? Mind you: without any (Gouvernment- or private) deposit insurance present. Well, thank you - but no thank you.

Secondly, I don't have a good insight into the business model of Coincheck, but I would guess they get their profit from either spread and/or commissions in trading/conversions. Since your balance measured in XRP would need to riso on 5% interest y/y , there's no going around this: Coincheck would need to open-market either buy or lend these XRPs. Not dollars, not yuan, but XRPs. Either way, that would be eating their margins as a result, on ever increasing XRP-dollar/yuan/whatever prices. Long term, taking into account compounding of interest, that could (would?) crash their business profit, with a nasty Coincheck failure - as an end result in the long run. Still happy you got your 5% y/y  - then to see the exchange going belly-uup? <_<

On a third note - and this is the most important one: fiat currency can offer a yearly interest denominated in the same base currency since it is based on an inflationary currency system to begin with: money can be created ("printed" in layman's terms). XRPs can not: there's a fixed supply (even very slowly decreasing due to the small transaction cost). That's why it's called a deflationary system.  So sooner or later, a scheme whereby actual XRPs are being paid out as interest into XRP accounts, these XRPs would go off-market, but the total market cap measured in XRPs remains the same. It's not a currency, it is an asset - with a fixed amount created. Ask @JoelKatz if you don't believe me that it is an asset and not a currency.

So if this interest payment scheme were to be applied on a very large scale, things eventually would come to a standstill. Yes, XRP value in terms of USD (or whatever) might then go through the roof, but in the end the entire system would not be sustainable anymore. Since at some point the XRPs needed for handing over  the interest wouldn't be available anymore.
Would that mean a total extinction of XRP? Hell no! Since such a wide-scale payment of interest in the system simply will not happen, I'm pretty sure. It won't happen since the "more professional parties involved" (like banks ;-) will surely understand that it would f0ck up their XRP-based-business. XRP will remain to be treated as an asset, not a currency. And apart from the big boys understanding things properly: long before Coincheck might already have gone out of business  - serving as a perfect warning to anyone, not to start paying interest to begin with.

On a final note: this "problem" might be "solved" through Coincheck issuing XRP-IOU's. Of course - and that's even a fundamental characteristic of the entire Ripple-system. But it won't render you 'original' XRPs. So thank you, but no thank you.

On a (last!) final note: the above of course does not mean you and I cannot get into a loan agreement based in XRP, me promising you to pay some interest in terms of XRP. However, it's just a zero-sum transaction (minus the small transaction fee). The amount of XRPs won't be changed, it would simply mean a re-allocation of assets (me getting poorer in terms of XRP, you getting richer in terms of XRP). A large-scale inflationary interest system, however, would be unstustainable denominated in XRP- that's the point that I'm making.

 

Edited by The Knight of Ahhrrgg

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@The Knight of Ahhrrgg

You’ve got valid points but I believe Coincheck is offering a solution. It might not fit for everyone but might fit for those who are willing to hold on their coins

Incentivizing holding will also result in the increase of the value, which then comes to the benefit of the ecosystem. The amount will not change, the value will (everything else being the same).

You say correctly on a very large scale but we’re at a very early stage and the cryptoworld is experimenting with different simple financial products., such as futures and lending. It tried ETF but we all know what happened ..at least for now. More complex products as derivatives will be inevitable at a certain point if this world keeps growing.

Now, at this stage, I’m happy XRP is included in these experiments. In the future? Coincheck might simply suspend the operations or tweak the system so they pay the interests in JPY or ..future will tell.

As for the return , everyone should do his/her own homework and act with the needed due diligence. Some might be happy with the promised return, others not.

Edited by zerpian

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On 5/11/2017 at 6:23 AM, The Knight of Ahhrrgg said:

Coincheck would need to open-market either buy or lend these XRPs. Not dollars, not yuan, but XRPs. Either way, that would be eating their margins as a result, on ever increasing XRP-dollar/yuan/whatever prices. Long term, taking into account compounding of interest, that could (would?) crash their business profit.

 

Great post.

Im still mulling over this, but if Ripple Inc as part of their MM incentive program set up a "line of credit" via PayChan to Coincheck... then Coincheck only tapped it when a user wanted to short XRP...

1. The Coincheck user has voluntarily taken the downside volitility risk exposure, not Coincheck.

2. Coincheck does not have to engage the open market, or borrow from other user's accts, to lend the XRP, they tap the PayChan

3. (I have not looked into this in detail) but they could be getting incentives from Ripple Inc in excess of 5%, possibly with the positive upside exposure to XRP.

This is interesting, was there another company that at recently announced enabling users to Short XRP?

Edited by KarmaCoverage

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13 minutes ago, KarmaCoverage said:

This is interesting, was there another company that at recdntly announced enabling users to Short XRP?

To my knowledge, Coincheck is the first one.

 

10 minutes ago, zerpdigger said:

seriously, isn't it just this ... ?!

On polo the counterparty is a user with collateral.

On coincheck, the counterparty is coincheck itself.

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5 minutes ago, zerpian said:

On coincheck, the counterparty is coincheck itself.

then i'm as confused as everyone else -- are we 100% sure it isn't a translation screw up?

all i can see is:

Quote

【Overview】

Users can earn interest rate according to the amount of cryptocurrency deposited.

【Who can use the service?】

All Coincheck users who have completed sign-up processes are eligible.

【Starting day of deposit】

Deposit will be available after Coincheck verifies lending application. Coincheck may disapprove an application depending on amount and term of deposit.

【The day you earn interest】

The interest rate is paid to user's account when Coincheck returns deposited cryptocurrency.

【Notice】

-To use Coincheck Lending, please note that user must agree with the consumption loan agreement, which is an unsecured contract. Hence, users have a risk not being able to receive deposited cryptocurrencies in a case when Coincheck bankrupt.

-User are prohibited from withdrawing, selling, or using deposited cryptocurrencies as margin trading until the end of a term or when Coincheck decides to return it.

-At Coincheck Lending, deposited cryptocurrencies are not managed as segregated funds.

so the max 5% is for one full year -- what happens if bitcoin loses 10% of its value while user/coincheck funds are in lockup?

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1 minute ago, zerpdigger said:

so the max 5% is for one full year -- what happens if bitcoin loses 10% of its value while user/coincheck funds are in lockup?

That's the idea. If you do not care about holding and really believe in the future value, then you might as well agree with the lock-up or opt for a shorter period (like 14-days).

That's what I made of the translation, though I'm not 100% sure of.

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hi ya just wanted to put my little bit in here, I have been lending my xrp out on polo since I first got them around 8months ago, when xrp hit 7cents for the first time (my first time) the lending rate was at it's highest 2.5%, I always lend for the 2 day period and made some good gains for me anyway, I mentioned it in the zerp box a lot of people also decided it was a good deal sad to say though they dragged the loan rates down to .0002% so after fee's it just didnt make sense to me anymore, but I can say that I was never ever ripped off polo has a good system to safe guard your loans, as soon as the (imo) nutters renew their running .0002% rates to a respectable level I will glad jump back in, hope this helps a little

 

                           

Edited by cannylad

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5% p.a? They can easily fund it from trading fees. No need to buy/lend outside. Just calculate max deposit volume from daily trade volume. See Liqui io for example. And liqui gives you 24% p.a.

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Thank you @GiantGox for this post. It's interesting that the Coincheck can now restart this (subsequent to their initial attempt in early May).

The interest rate for JPY at Japanese banks has been almost zero for many years, from long before other major fiat currencies similarly adopted close to zero interest rate. So 5% p.a (which is the default interest rate stipulated in the civil code) reminds us of the good old days (before 1990s), and this may assist this exchange to retain the existing customers and get new ones, too. It may even have a bigger effect of getting more Japanese into the world of crypto currencies. In this regard this is a welcoming news.  

Having said that, I probably won't be attracted too much by this product, mainly because it is to place my XRP directly at the counterparty risk of this company in return for 5% p.a.  Even without recalling Mt. Gox incidents, the start of business by the SBI Virtual Currencies is expected soon and the competition among exchanges will definitely get harsher. It's difficult to predict which exchanges can survive. Having observed (and experienced personally, too) problems of withdrawing assets from some exchanges, I would personally prefer putting my XRP in a safer place (on which I have a full control) such as nano s.   

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On 11/05/2017 at 11:23 AM, The Knight of Ahhrrgg said:

So if this interest payment scheme were to be applied on a very large scale, things eventually would come to a standstill. Yes, XRP value in terms of USD (or whatever) might then go through the roof, but in the end the entire system would not be sustainable anymore. Since at some point the XRPs needed for handing over  the interest wouldn't be available anymore.

yep, this might be just a temp measure to lure in customers/liquidity 

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