By Dr Shreekant Prasad*
Recently Binance revamped its platform, dubbing it the version 2.0, with it they have also launched a few new products in a bid to diversify their business and increase user retention. One such newly introduced product is its subscription-based lending product called Binance Lending.
This is launched in conjunction with Binance’s other newly introduced; Margin Lending product. To avoid any confusion for the readers, Binance Lending is a product where its subscribers would lend their money to Binance, while the Margin Lending product is where they could borrow from Binance. Typically for a traditional lending institution, the interest rate at which they lend out to borrowers is always lesser than the interest rate that it offers to its creditors and investors. This is where Binance’s Lending product is different and could turn out to be a risky investment where Binance could fail to pay the annualized interest that it promises for its products.
Clever traders have already figured out a loophole where they can borrow from Binance at a lower interest, and lend it back to Binance at a higher interest – however, there’s a caveat, let’s break down the interest rates to understand this further. Currently, Binance is offering 3 assets in its lending product; Binance Coin, USDT, and Ethereum Classic. These carry an annualized interest rate of 15%, 10%, and 7% respectively with redemption dates for maturity set at a 14 -day interval – which is from August 29th to September 11th. Now here’s the loophole, through Binance’s margin loans, users can borrow USDT at 10.0375% annualized interest rates. If borrowed USDT is converted to BNB and lent back to Binance at that 15% rate, then users could easily make a rough 4%+ profit from this. Provided BNB markets do not crash hard in the given period.
The total subscription cap for Binance’s lending product is set at 200,000 BNB, 5 million USDT, and 20,000 ETC. If all the products are fully subscribed, Binance would have to shell out, 1150 BNB, 19178 USDT, and 53 ETC, which is upwards of $48,000 worth of interest as of writing this article. This could account for substantial losses for Binance. For instance, if the entirety of the 5 million USDT is funded through Binance’s margin loans by multiple users, then Binance would gain $19,250 for a 14-day period. While it would be paying out $28770 for the same amount through its BNB lending product. The only way this could be favorable for Binance is if the BNB prices rose during each lending maturity period.
(The views expressed are solely those of the author.)
