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FTX exchange joins the lending market, how does it work? How does it compare to Bitfinex?

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FTX exchange joins the lending market, how does it work? How does it compare to Bitfinex?

This article is authorized and reproduced from "Old Cat Tests 3C". The author is Josh Lu Zijian. The original title is "Stable Income in Cryptocurrency Market, FTX Exchange Joins Lending Market"

There has always been a great demand for stable income in the cryptocurrency market, especially when funds have nowhere to go under the zero interest rate policy of traditional finance. In comparison, stable income of over 8% annually is abundant in the cryptocurrency market, far exceeding the traditional financial market. This has attracted the attention of many external investors outside the cryptocurrency circle, creating a huge business opportunity. Among the oldest players in this market is Bitfinex, with an average annualized profit from lending around 12-15%. Currently, emerging competitors like Binance's liquidity mining also focus on stable profits with an annualized return of around 15%. FTX Exchange, established in 2019, has recently joined the lending market.

FTX Digital Asset Derivatives Exchange

FTX was founded in April 2019 and is an exchange focused on crypto derivatives. Initially, it offered services such as contract trading, leveraged tokens, and some spot trading. The range of service offerings has been continuously innovating, from BTC futures contracts to hash rate contracts, oil futures contracts, U.S. 2020 presidential election contracts, and most recently, U.S. stock equity tokens. FTX quietly introduced a lending feature.

FTX Leveraged Lending Feature

For more information on this feature, you can check the official information. Here are a few key points:

  1. Users can lend and borrow through a peer-to-peer mechanism
  2. The system automatically matches lenders and borrowers
  3. Each lending period is one hour, with needs reconfirmed hourly
  4. Lenders receive interest every hour
  5. Funds that have been lent out will be locked and cannot be withdrawn/sold/used as collateral, but can be used as margin to prevent liquidation
  6. FTX charges a 20% fee on interest, and lenders receive the interest amount after deducting 20%
  7. Borrowers only need to input the borrowing amount and minimum interest rate
  8. It takes 6 hours to withdraw the lent funds after canceling the loan

Calculation of Matching Loan Rates

Marginal interest rate calculation will be used, where loans will be prioritized for those with lower quoted rates, albeit not the lowest. The operation is as follows:

Total fund demand is 400 USDT. At this point, Josh offers the lowest annual interest rate of 5%, so 100 USDT is lent out first. Iqmore offers the second-lowest rate of 10%, so the remaining demand of 300 USDT will be fulfilled by Iqmore at a rate of 10%, which is the highest among lenders. This is known as marginal loan interest rate.

With a total fund demand of 400 USDT, the interest rate calculation and loan allocation are as follows:

Josh provides 100 USDT / Rate 5%
Iqmore provides 300 USDT / Rate 10%

The final lending rate is calculated based on the highest rate among the two, which is 10%.

A lower lending rate setting grants priority in lending and is borrowed more quickly.

If the total fund demand is 700 USDT, the interest rate calculation and loan allocation are as follows:

Josh provides 100 USDT / Rate 5%
Iqmore provides 500 USDT / Rate 10%
Kelly provides 100 USDT / Rate 20%

The final lending rate is calculated based on the highest rate among the three, which is 20%.

FTX Leveraged Lending Feature Unboxing and Testing

As the feature is new, the interface is subject to change, and what you see may differ.

1. How to Enable the Lending Feature?

Go to Settings -> Spot Margin -> Enable to activate the lending feature.

You can directly access the lending or borrowing functions on the wallet page.

Lending: https://ftx.com/spot-margin/lending

Borrowing: https://ftx.com/spot-margin/borrows

Select the currency and enter the lending amount and minimum expected interest rate for matching.

For the amount and rate, you need to enter the minimum hourly rate as interest is given hourly. In the image, 0.2 actually represents 0.002% per hour, which translates to approximately 17.5% annually. Just enter 0.2, and the system will automatically convert it.

Hourly interest earnings are as follows:

Josh's current experience indicates that due to the new product, demand is not high yet. Therefore, as shown in the yellow box in the image, there were instances of unsuccessful loan matches during hourly matching. The amount for this experiment was 500 USDT with a relatively low minimum interest rate set at around 17.5%. The actual matched annualized interest rate was approximately 20%. Thus, even if a lower rate is entered, it may not necessarily be used for lending. There were several hours of lending gaps yesterday, but none occurred after the 27th. If this continues, there will be better capital utilization.

Additionally, those interested in trying FTX lending can use Josh's referral code for a 5% fee discount: https://ftx.com/#a=joshtw