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Comment by once_inc | Hacker News Reader

Their Terms and Conditions regularly state that users of the platform don't deposit their money, but actually lend that money to the platform, and that the platform isn't obligated to pay back that loan in case of default.

Basically, for a marginal yield in a volatile industry, you are increasing your exposure to counter-party risk. People using these services are greedy and dumb, and I can't for the life of me understand why anyone would do this.

Also; I expect that a significant number of these companies will eventually be sued and will be forced to repay their customers.

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> I expect that a significant number of these companies will eventually be sued and will be forced to repay their customers.

The money was already moved. They will declare bankruptcy.

Exactly this.

Also, they may not have lost any real money, so the users may not have the rights they think they do here (and probably shouldn’t, given the courts aren’t funded to pursue imaginary internet money).

Accepting loans from private consumers is a highly regulated thing where you can't (and/or shouldn't, depending on the jurisdiction) choose what rules will apply simply by declaring so in your terms and conditions.

If a platform wants people to lend money to them, they should be a licensed (and FDIC-insured) credit institution.

But they aren't lending money, they're lending crypto.

i’m not well versed in finance law but id be shocked if the laws weren’t inclusive enough to include a “currency” when discussing “money”.

Crypto is not a currency, it's a baseball card.

IMHO if you're holding/handling securities owned by customers, then there are even stronger requirements for keeping them separate from your own funds, in that case you would have customer-owned securities (or baseball cards, or whatever) in your custody, not owned/borrowed by you.

While this is an edge case with a service that is far from being mainstream, I wonder if that kind of setup will propagate to standard financial products.

I am thinking about how over the years we stopped owning digital purchases like music and books, and instead moved to a model where the service gives unlimited access to the good in exchange for a one time payment. At first it was a few fringe services, and now this is basically the norm when it comes to digital purchases.

How far would we be from a future where a brick and mortar "banks" offer their standard services, but also a "fancy account" that feels more attractive but doesn't actually work like a bank account anymore.

> wonder if that kind of setup will propagate to standard financial products

It won’t. It’s been outlawed since the 30s. China had its wealth management product era, and is now cracking down. Nobody financially literate should be falling for a yield farming scheme.

There was a little bit of this in the pre-2008 era. Not with retail deposit accounts, but various UK local authorities got caught in the Icelandic bank collapse: https://www.localgov.co.uk/Councils-recoup-1bn-lost-to-Icela...

https://www.ipe.com/local-authorities-hold-over-1bn-in-icela...

(why would a UK council keep its money in an Icelandic bank? Higher interest rates. Where did the higher interest rates come from? Higher risk.)

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