| Even Aave itself has better rates -- the figure the author is quoting is from the the platform's option to lock in a fixed rate for your loan. Currently you can lock in 12.24% [1], but you can also borrow at the variable rate, starting at 3.15%. Now, that does subject you to uncontrollable variation, but if you look at the chart, it's historically stayed at a very low level. Even the occasional spike you see is only for a day or two and has little impact on the annual average. [2] Furthermore, the whole time, you're getting credited for interest accrued on your collateral. (1.18% on the USDC here -- so, all in all about a 2% annual carrying cost, not a bit issue if you think the crypto market are on borrowed time!) "But what about the case where USDT borrowing surges and you have a persistent high rate?" If that happens at all, it's probably because everyone else is dumping Tether, meaning its price is probably falling, and it's a great time to close the short anyway! [1] https://app.aave.com/reserve-overview/?underlyingAsset=0xdac... [2] People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms. It was especially bad when banks were complaining about having to do one-off overnight loans on a very temporary basis for 4% rather than 2%, supposedly meriting Fed intervention! |
That is assuming crypto rates are like USD bank rates.
Do you know any structural reason the rates can’t spike to a Megapercent (annualised) rate or higher? If you are being charged interest, and the rate spikes, you could lose your collateral quite quickly (and it seems likely trading would be stopped so you might not even be able to close out).