Just last month, Binance revamped its offerings, adding margin trading functionality to the newly dubbed ‘Binance 2.0’ platform. Now, Binance has added several more new features in an attempt to continue diversifying its business and grow its userbase.
One of these newly introduced products is its subscription-based lending product called Binance Lending, which is being launched in conjunction with its new Margin Lending product.
In short, Binance Lending is a product which allows subscribers to lend money to Binance, while the Margin Lending product allows users to borrow funds on Binance.
A Costly ‘Mistake’ for Binance?
For most traditional lending institutions, the interest rate charged when lending to borrowers is always lower than the interest rate that it offers to its creditors and investors. However, Binance’s lending product is different and could turn out to be a risky move, since Binance could end up needing to pay out more than it initially expected.
Shortly after the new products were announced, clever traders seemingly figured out a loophole which allows them to borrow from Binance at a lower interest rate, and lend it back to Binance at a higher rate. There is, however, a caveat. So let’s break down the interest rates Binance offers to properly illustrate this potential loophole.
As it stands, Binance allows users to select three possible assets with its lending products: Binance Coin (BNB), Tether (USDT), and Ethereum Classic (ETC). These carry an annualized interest rate of 15%, 10%, and 7% respectively with redemption dates for maturity set at 14-day intervals — the current period set between August 29 and September 11, 2019.
Earn More Than You Lose
Here’s the loophole — by taking out a Binance margin loan, users can borrow USDT with a 10.0375% annualized interest rates. If this borrowed USDT is converted to BNB and lent back to Binance at the 15% rate, then users could easily make a rough 4%+ profit from this, given that BNB markets do not crash during the loan 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, 1,150 BNB, 19,178 USDT, and 53 ETC, which totals upwards of $48,000 in interest at the time of writing.
This could cause Binance substantial losses. For instance, if the entire 5 million USDT is funded through Binance’s margin loans by multiple users, then Binance would gain $19,250 for a 14-day period. However, it would be paying out $28,770 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. This has led some to speculate that this is not actually a loophole, but a strategy Binance is using to pump the value of Binance Coin — one that it appears to be pretty good at.
What do you think about the new ‘loophole?’ Is it an intentional plan to pump BNB, or an example of a costly mistake by Binance? Drop your thoughts in the comments below!