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Brokerage firm ShapeShift CEO and Founder Eric Voorhees recently voiced his concerns regarding the decentralized finance (DeFi) sector. He highlighted the high compound interest rates observed for stablecoins such as Tether (USDT) and USD Coin (USDC) on platforms like Compound. Voorhees’ comments came after recent developments related to ShapeShift’s settlement with the U.S. Securities and Exchange Commission (SEC), which required the company to pay a fine.
Are High Interest Rates Attracting Major Players?
Voorhees pointed out that collateralized loans on platforms like Compound offer compound interest rates between approximately 20 to 30 percent, drawing attention to the extraordinary interest yields on stablecoins like USDT and USDC and issuing a general warning.
Expressing his astonishment at these unprecedented compound interest rates, Voorhees questioned the underlying dynamics that enable these interest yields and how such high rates could be sustained without convincing major financial players to convert their bank-held fiat into stablecoins to earn this yield.
In a tweet, the ShapeShift CEO described this initiative as “one of the best risk-adjusted transactions in the world right now,” while admitting that he might be overlooking some factors. He expressed his expectation for an explanation from the crypto community, asking “Am I missing something?”
Responding to Voorhees’ question, a crypto market participant suggested that the current interest rates might be unsustainable due to a potential stablecoin squeeze. The participant associated the rates with leveraged traders/farmers and noted that Binance‘s farming pools had recently become noteworthy. Voorhees acknowledged that the market participant’s response seemed logical, admitting, “This is probably the right answer, I’m just surprised by the rate’s height.”
SEC Strikes ShapeShift and Its Altcoin
As is known, ShapeShift was recently forced to settle with the SEC over allegations of operating as an unregistered broker between 2017 and 2019. As part of the settlement, ShapeShift agreed to pay a fine of $275,000, including a cease-and-desist order. The settlement had a significant impact on ShapeShift’s altcoin, FOX, causing its price to drop by more than 10 percent to $0.078.
In response to the SEC’s allegations, ShapeShift announced in January 2021 its plan to overhaul its business model, stop direct cryptocurrency exchanges through its website, and cease acting as a counterparty in customer transactions. By July of the same year, ShapeShift began liquidating its corporate structure and emphasized its commitment to immutable, unregulated decentralized finance principles.
