Data Suggests Ether Lenders Have Forgiven bZx
With trading halted, Ether lenders are still earning some of the highest interest rates on the backs of open Fulcrum and Torque positions.
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Just four days after the first bZx attack, Ether lenders could have earned up to 42% handing off their ETH. Now, it looks like this interest rate has lowered, indicating lenders are back for more.
Ether Lenders Are Back for More
The bZx lending platform entices users to join via attractive interest rates.
As lenders move in, no matter the asset, the interest rate of the given token drops because borrowers, margin traders in this case, have a larger pool to pull from.
It is a balancing act that offers high returns in exchange for deeper liquidity.
On Feb. 19, just four days after the first bZx hack, the interest rate for ETH lenders was more than 40%.
The reason behind such high-interest rates is directly related to the two large exploits on bZx. In the first, a crafty trader made off with roughly $330,000 due to an oracle fault. The second ended in another trader taking home $638,000 for similar reasons.
Fearful that their funds were at stake, users began to pull their ETH holdings from the platform en masse.
To compensate, the protocol did what it was programmed to do.
It began signaling interest rates in proportion to the amount of Ether in the lending pool. At that time, liquidity was at an all-time low, thus the protocol tried to attract users back to the platform via exorbitant returns on their holdings.
It appeared, however, that the damage was done and trust had been lost.
The bZx platform bled funds for two weeks. From a high of nearly $20 million locked in on Feb. 18, DeFi Pulse indicates that this sum was down to $7.41 million on Mar. 2.
In response to the two attacks in the final weeks of February, the bZx team closed trading on the platform. Naturally, this has played a role in onboarding funds.
This closure has not affected the lending feature, however.
And since auditing the source code and actively working to firm up security measures, the platform now appears to be steadily increasing its Ether holdings.
The rise of liquidity can be attributed to two phenomena.
In the first, new and old users are returning in search of high returns on their loans. Whether the rise of these incoming lenders indicates that users are back trusting bZx, or if the high-interest rates merely entice them is unclear.
Secondly, the bZx team is helping traders manually close any open positions. Closing open positions returns funds to the liquidity pool and thus lowers the interest rates.
At current, users can earn over 16% on their ETH holdings which are by far the highest rates in DeFi.
Lenders earn this rate because there still exists a number of open positions on the platform. On the other side of every loan is a borrower looking for extra liquidity to execute margin trades on Fulcrum and Torque.
These users are the ones who support interest rates for Ether loans.
Meanwhile, trading is still not possible according to co-founder, Tom Bean. The team has indicated that the system will let traders and lenders close their positions before the end of Mar. 9 US time.