Is it worth it to lend out some of my xmr on poloniex?
Economically, the benefit of lending is the following 4 components:
* Opportunity cost
* Interest income
* Default risk
* External factors.
1. Opportunity cost is that when you lend moneros, you cannot do anything else with them. This is very low for most people, because they would anyway not do anything.
2. What the investment promises to pay.
3. How likely it is that you don't get the money back, or don't get it in full, or have insecurity or delay in getting it back.
4. Helping someone with the loan is a positive externality, as is getting XMR markets bigger. Getting someone into debt or "giving ammo to shorters" are negative. These factors compound in value for big players (such as loaning out 1,000,000 XMR cheaply and then buying them on the market, trapping the shorters - this may wreck the market (exchange defaulting)
or kindle much new interest in XMR. (
Example of a short squeeze IRL.)
In altcoin markets, I think it is preferable to think of returns as weekly. Annual returns require difficult compunding in every stage, while weekly percentages are so low they can just be summed, without loss of much accuracy.
1. I'd say opportunity cost per week is between -0.10% or 0.10% for most (between -5% to 5% APR). It can be positive if loaning out the money saves you of trouble of storing it for instance.
2. Don't know in Poloniex, but in CK if you buy the bonds with weekly return (consols) the return is 0.57% (in addition, they have increased in value but they may also decrease so let's not account for that).
3.
Exchanges have a quite short life expectancy, and the probability of losing all your money is staggeringly high. Even if we expect an exchange to live 5 years on average (which none of them has done so far!), the weekly risk of loss is -0.40%. Estimating the default risk carefully is very important and very difficult. Scam exchanges live a few months and scam lenders have no interest in paying back at all. Even
good borrowers, such as governments, corporations and upstanding people, have an annual historical default risk of 1-3%, with some recovery value from guarantees (put -0.02...-0.06 in weekly).
4.
Every action in market is good for growing the market imo so participating in the loan market (or investing in CK) is a net positive, but for a small player this is only a small factor perhaps 0.05%.
------------------------------------------------------------------------------------------------------------------------------------
( 0.0 + 0.57 - 0.4 + 0.05 ) % = +0.22% per week positive return. Calculate yours!
Could you please describe the math you used to measure the exchange default risk??
